Mar 17, 2023 13:51
The risk proxy AUD/JPY was pummeled earlier this week in a risk-averse environment, sending the pair to 87.50. The emergence of the US banking sector's liquidity crisis revealed who was swimming naked.
This week was a roller coaster, with several banks experiencing liquidity shortages that prevented them from conducting regular market operations. Among the institutions are SVB, Signature Bank, Credit Suisse, and The First Republic Bank. Following the SVB's failure, nobody anticipated such a rapid rate of banks falling into the liquidity trap.
It appears that rising interest rates and quantitative tightening have stifled global liquidity and exert pressure on banks. Wednesday was a difficult day for the AUD/JPY pair due to Credit Suisse's problems, which prompted significant risk aversion. Credit Suisse is a crucial participant in global operations.
Several significant central banks took action as the media focused on Credit Suisse. The Bank of England (BoE) held extensive discussions with international counterparts, and the Swiss National Bank (SNB) proposed a CHF50 billion covered loan facility.
First Republic Bank encountered similar difficulties in the United States, but prominent institutions including JPMorgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley contributed a pool of liquidity.
During the previous trading session, the AUD/JPY exchange rate was bolstered by these contingency plans and prompt actions to address the emerging liquidity crisis. This week, despite positive Australian employment data, the AUD/JPY traded predominantly in accordance with risk sentiment.
Mar 16, 2023 14:12