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Asia Open | FX & Gold: The road to asset price reflation will be fraught with peril

Market Analysis / 1 Min Read
Stephen Innes / 16 Jun 2020

Gold Markets 

After tumbling hard overnight, gold received a last-minute reprieve from the Fed and increased its balance sheet, which effectively weakened the US dollar as risk assets soared. 

Currency markets

The US dollar is trading weaker this morning after the Federal Reserve Board donned their firefighting suits again after announcing updates to the Secondary Market Corporate Credit Facility (SMCCF) – they plan to begin buying a broad and diversified portfolio of corporate bonds to support market liquidity.

And it seems we’re back to the state of nothing matters anymore, but that belies the fact markets are starting to realize that idiosyncratic upticks in Covid-19 outbreaks are going to present neither a moral nor economic dilemma for policymakers. 

But, as evidenced by the recent run of choppy price action, the road to asset price reflation will be fraught will peril, even as central banks worldwide continue to build multiple stimulus bridges to span to the post-pandemic gap.

Risk betas flourished overnight with the Australian dollar ripping higher after the Federal Reserve suggested they’ll continue to monetize all debt. At the same, the Fed’s monetary policy should pose little threat to US dollar bears. 

Over the past few sessions, USDJPY has shown signs of some minor base-building price action and as risk has stabilized demand on dips has started to emerge once again. Overall, however, it’s challenging to get too excited unless USDJPY can break back above 108.00. 

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