(Bloomberg) -- A key gauge of risk sentiment in the currency market is flashing a warning sign amid concerns over the impact of China’s Covid policy and a hawkish Federal Reserve.
The Australian dollar-Japanese yen cross has fallen below the uptrend it has been in this year and its 200-day moving average, a breech which points the way to further downside indicating a worsening of sentiment in the currency market. The pair slumped 1.6% Monday as traders reacted to China’s Covid curbs erupting in protests and Fed officials emphasizing the need for more rate hikes.
The cross is closely-watched by FX traders given the contrast between the risk-sensitive Aussie and traditional haven yen.
“The protests appear to have caused market participants to rethink their optimistic outlook for China’s Covid policy and economy,” wrote Carol Kong, a strategist at Commonwealth Bank of Australia in a note. “Aussie-yen can weaken further if concerns about the global economic outlook intensify.”
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