I was reading an article yesterday that the Aussie/Dollar pair fell due to a sharp fall in oil prices (38.20 down to 36.70) which the market sentiment considers as "Risk off", and as oil prices recovered today, so did the Aussie/Dollar pair as the market was apparently "Risk on".

What makes small rising oil prices "risk on"? If anything i thought the Dollar would rally as fed Yellen said they are implementing a more cautious approach to rate hikes due to weaker global growth and fallen commodity prices.

At what point does the recovery in oil prices turn from risk on to risk off? And why is the dollar risk off? Is it still largely considered a safe haven?

**EDIT If you feel the need to down vote can you please explain why. I'm wanting to learn, if the question or my current understanding is really bad can you please explain what i am doing wrong. Thank you

  • $\begingroup$ I did not voted down, but this is a quant stackexchange, and your question is rather on economics. $\endgroup$ – lehalle Apr 14 '16 at 20:37
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    $\begingroup$ I'm voting to close this question as off-topic because it is not a quant question, it is one on economics $\endgroup$ – lehalle Apr 14 '16 at 20:38
  • $\begingroup$ Okay, sorry, all good :-) $\endgroup$ – user3796133 Apr 15 '16 at 11:02

Although they are often used in the media, there is no precise definition for terms like risk-on/risk-off, market sentiment, risk appetite and so on. Usually a risk-on day is simply a day when the stock market went up, and similarly for a day of "increasing risk appetite". Generally the possibility of rate hikes raises the dollar, but not always. So the article you read is not very scientific or quantitative and in any case was written AFTER the fact when explanations are always easy. Ask the author what will happen next and he will be baffled...

You will have noticed that in recent months stocks and oil have tended to move together so of course that means that oil goes up on "risk-on-days" since that is how risk-on is defined. LOL. But that is not really saying anything. And a few years ago I distinctly recall that oil and stocks used to move in opposite directions; whether that will happen again and at what price level nobody knows.

There is no point in trying to get a deep understanding of all this, it is simply a journalist's opinion and ex-post rationalization using fancy words.

  • $\begingroup$ Oh, so essentially that article is just hindsight. So there is no real way of determining where are market could move to? I noticed investment banks seem to try and predict where prices of markets might be in a years time, what's the best approach to develope my knowledge like this, how can i learn to create my own market opportunities so to speak, rather than just watching S/R levels and waiting for volatile event news like every other beginner retail trader. I think being entrepreneurial, being able to develope workable market strategies is what separates real traders from gamblers. $\endgroup$ – user3796133 Apr 9 '16 at 8:52

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