AUD/JPY hovers below 93.00, downside seems limited due to diminished safe-haven demand

AUD/JPY could appreciate as safe-haven demand fades amid the easing US-EU trade tension.
Trump extended the tariff deadline on EU imports after speaking to EC President Ursula von der Leyen.
The Australian Dollar could have received support as China Industrial Profits rose 3% YoY in April.

Akhtar Faruqui FXStreet

AUD/JPY steadies after recovering daily losses, trading around 92.80 during the European hours on Tuesday. The currency cross gains ground as the Japanese Yen (JPY) depreciates over fading safe-haven demand. This sentiment is driven by the easing trade tension between the United States (US) and the European Union (EU) improves the traders’ risk appetite.

Following Friday’s threat by Trump to impose a 50% tariff on imports from the European Union, the US President decided to extend the tariff deadline on the European Union (EU) after having a phone call with European Commission President Ursula von der Leyen on Sunday. On Monday, the EU agreed to accelerate negotiations with the United States (US) to avoid a transatlantic trade war.

On Tuesday, Japan’s Finance Minister Shunichi Kato noted that interest rates indicate various factors, but the market considers rising rates as reflecting concerns over the country’s fiscal health. Kato added that the government will closely monitor the bond market situation, including the super-long sector.

The Australian Dollar (AUD) could have gained some support as China Industrial Profits rose 3% year-over-year in April, following a previous growth of 2.6%. Additionally, the profits increased 1.4% YoY in the first four months of 2025, advancing from 0.8% growth in the January–March period. Any change in China's economy could impact the AUD due to a close trade relationship with Australia.

The Chinese state media outlet, Global Times, said that positive developments helped drive industrial profits in April. The State media outlet also cited that new driving force sectors like equipment and high-tech manufacturing saw rapid profit growth, highlighting industrial resilience.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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