Risk Appetite/Aversion a See Saw Act

Lately risk appetite and risk aversion have been performing a see saw act. One week its risk aversion, the next, returning risk appetite. Obviously a return to risk appetite will provide investors with more Forex opportunity than risk aversion. Traditionally the US dollar and the Japanese Yen benefit from risk aversion as investors seek a safe haven from uncertain and volatile markets. Currency strategist Matthew Strauss had this to say about changing risk appetite, “

Japan’s action earlier in the day had contributed to some risk-taking, but investors are still cautious. I wouldn’t put too much into today’s lower risk aversion, because risk appetite can change overnight.”

Higher Yielding Currencies Benefit

On Tuesday a modest increase in risk appetite benefited some higher yielding currencies such as the New Zealand and Australian Dollars as investors took advantage of Forex investment opportunity caused by a global rise in stock markets. All eyes are on the newly confirmed Treasury Secretary Timothy Geithner. Investors are hoping Geithner will move quickly to address the worst economic downturn in decades.

Japan Rescues Troubled Companies

The Japanese government launched a $16.7 billion dollar plan to buy shares in many troubled companies affected by the economic downturn. The move heightened risk appetite and sent investors to the Forex opportunities offered by higher yielding currencies. The Nikkei exchange rose almost 5% during the day on Tuesday. Matthew Strauss, currency strategist at RBC Capital Markets, stated, “We’re seeing a slight increase in risk appetite as most stock markets have risen and therefore we’re seeing dollar/yen gain a little bit.”

Euro Posts Slight Gains

The Euro rose for the first time in weeks and many short term investors took advantage of the Forex opportunity offer by the slight gain. Gains are expected to be short lived as data from the Euro Zone continues to be troubling. Investors will be watching for developments coming out of the Federal Reserve meeting which begins Wednesday and is expected to last two days. Any actions taken by the Fed are bound to affect currency markets and the Forex opportunity they provide.