AUD/JPY back to 89.00 mark, as the Yen’s safe-haven demand fades

• AUD/JPY rebounds after rapid actions to address emerging financial turmoil.
• Central banks intervene to rescue banks facing liquidity crunches.
• Japanese Yen’s dynamics are back in play after a long time.

The risk proxy AUD/JPY was hammered brutally earlier this week, pushing the pair to touch the 87.50 level in a risk-averse environment. The liquidity crisis that emerged from the US banking sector revealed who was swimming naked.

This week was a roller coaster ride, with several banks facing liquidity crunches to fulfill their regular market operations. The banks include SVB, Signature Bank, Credit Suisse, and The First Republic Bank. After the SVB fallout, no one expected such a fast pace of banks falling into the liquidity trap.

It seems that surging borrowing costs and quantitative tightening have drowned liquidity globally and are putting pressure on banks. AUD/JPY was hit hard on Wednesday when troubles at Credit Suisse, a key player in global operations, sparked strong risk aversion.

As the media focused on Credit Suisse, some key central banks jumped into action. The Bank of England (BoE) held important talks with international counterparts, and the Swiss National Bank (SNB) offered a CHF50 billion covered loan facility. 

In the US, First Republic Bank faced similar problems, but major banks like JPMorgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley came to the rescue with a pool of liquidity.

These backstop plans and rapid actions to deal with the emerging liquidity crisis boosted the AUD/JPY in the previous trading session. Despite upbeat Australian jobs numbers, AUD/JPY mostly traded in line risk sentiment this week.

Levels to watch