The Australian dollar is bearing the brunt of global risk-off flows, while the Canadian dollar is finding relative support from surging oil prices. With Brent crude spiking over 11% and the Middle East crisis escalating, Canada’s terms of trade improve, while Australia highly sensitive to China and commodity risk sentiment—continues to suffer.

Add to that the unwind of carry trades and you have a clean divergence trade. CAD benefits from oil and stability; AUD is hurt by macro fragility and China’s persistent slowdown.

SHORT AUDCAD

Amid the Israel-Iran conflict, markets are rotating hard into safe haven currencies. While both the USD and JPY are benefiting, the dollar's recovery from oversold levels combined with the Fed's hesitancy to cut gives it more upside room in relative terms. Meanwhile, the Bank of Japan remains firmly dovish, and energy-driven inflation risks only reinforce their caution.

With oil prices spiking and volatility rising, the BoJ will likely stay on hold, especially as yen weakness is now more tolerated than in past cycles. The rebound in yields, risk aversion, and oil-sensitive macro fears all make this pair an ideal play for upside.

LONG USDJPY

Gold has broken out to fresh record highs above $2,400/oz in response to the Israel–Iran conflict. Beyond technical breakout dynamics, there is a deep fundamental bid behind this rally, driven by safe-haven flows, inflationary concerns, and distrust in fiat currencies during wartime instability.

The longer the crisis lasts or escalates, the stronger the bid for gold. This trade captures a continuation of that momentum, supported by both fundamental demand and technical strength.

Geopolitical Instability: Military conflict in the Middle East creates an environment of fear and uncertainty. Gold thrives in this setting as a time-tested store of value.

Breakout Momentum: The rally through $2,400 marks a significant technical breakout after consolidating below record highs for weeks. These moves often attract CTA and fund flows.

Central Bank Demand: Global central banks especially in emerging markets have been accumulating gold to diversify away from USD exposure and geopolitical dependence. That tailwind is reinforced in a conflict scenario.

USD Behavior: While the USD is rising modestly in response to the risk-off tone, gold’s behavior has decoupled rallying even in the face of a stronger dollar, which reflects the depth of demand.

LONG GOLD

The Israeli strike on Iranian military and nuclear infrastructure has triggered a surge in geopolitical risk across the Middle East. This event is not just a one-off flare-up it raises the possibility of a broader regional escalation involving global powers, which is causing global risk sentiment to deteriorate sharply.

In that environment, investors rotate out of risk-sensitive currencies like the Australian dollar (AUD) and into relatively safer or commodity-supported currencies like the Canadian dollar (CAD). The sharp rally in crude oil due to fears of supply disruption from the region further boosts CAD as Canada is a major energy exporter.

Geopolitical Shock: The Israeli offensive on Iran’s nuclear sites marks a significant escalation and is not expected to be short-lived. Iran’s potential retaliation could lead to higher oil prices, closed airspaces, and broader market instability.

Risk Sentiment: AUD is typically sold off in global uncertainty due to its close ties with Chinese growth and commodities that are sensitive to global demand.

Oil Surge & CAD Strength: Brent and WTI crude have surged over 5–6% in response to the strikes. This strengthens the Canadian dollar as oil exports are a major part of Canada’s trade balance and GDP.

Flight to Quality Rotation: Markets are unwinding risk-on trades, favoring currencies like CAD that are backed by hard assets and less exposed to global trade disruptions.

The Japanese yen has continued to weaken, but market positioning is increasingly one-sided. With the Bank of Japan expected to signal a reduction in JGB purchases — or potentially hint at another rate hike — the risk of a hawkish surprise is underpriced. Meanwhile, the Australian dollar is vulnerable to a broader risk-off shift, particularly if the US-EU tariff situation escalates or bond markets struggle to absorb upcoming supply.

AUD/JPY looks stretched technically and fundamentally. Yield differentials still favour AUD, but if BoJ guidance shifts next week or risk sentiment deteriorates on poor Treasury auction outcomes or rising geopolitical stress, the pair could correct sharply. This is a contrarian long-JPY idea, in line with your strategic approach to trading against crowded positioning.

SHORT AUDCJPY

The softer US CPI print has prompted a repricing of rate expectations and undercut the dollar’s recent momentum. At the same time, the Swiss franc stands to benefit from safe-haven flows as markets remain wary of unresolved trade tensions and looming tariff escalation. With US long-end yields under pressure and inflation fears easing for now, the macro environment supports further dollar weakness against low beta, defensively positioned currencies.

CHF is particularly well-positioned here, as Switzerland is less directly exposed to the US-EU tariff risks, and SNB policy has remained consistently prudent. If US inflation data continues to disappoint or if bond market volatility picks up due to poor auction results, USD/CHF could break lower in a clean, momentum-driven move.

SHORT USDCHF

The combination of heightened geopolitical risk (US-China tensions, California unrest) and softening US macro momentum (CPI risks + fragile market sentiment) supports safe-haven flows. If today's CPI print comes in soft or signals waning inflation pressure, it could trigger a wave of USD selling especially if the market starts to doubt further Fed hikes.

Meanwhile, Japan still benefits from capital repatriation flows during global risk-off episodes. Although the BoJ remains dovish, in times of macro instability, the yen tends to outperform especially when equity volatility rises and global yields soften.

SHORT USDJPY

Australia’s weak Q1 GDP print confirmed the slowdown, and the RBA is now expected to cut again in July. Meanwhile, the ECB is cutting too  but the euro is supported by Germany’s fiscal stimulus and relatively less dovish forward guidance. This policy divergence, combined with soft Aussie fundamentals, supports long EUR/AUD especially if AUD fails to clear 0.6500 against the USD. A solid entry could be found on any dip toward 1.6150–1.6200.

LONG EURAUD

The SNB is facing fresh deflation risks, and markets are pricing in a high probability of another 25bps rate cut this month with talk of a potential return to negative rates later this year. While the US dollar is trying to bounce, the franc’s strength is becoming a policy headache. A short USD/CHF position aligns with the view that the SNB will act more aggressively, while the USD's rebound remains shaky ahead of NFP. Look for re-entry opportunities near 0.9000–0.9050 if price bounces.

Gold is under short-term pressure from surging U.S. yields and USD strength. With investors pricing in higher future borrowing needs and reduced tariff income, bond markets are bracing for more supply — sending yields up. This is typically bearish for gold, which competes with yield-bearing assets. Additionally, USD appreciation makes gold more expensive for non-dollar buyers. Unless broader risk sentiment deteriorates sharply, gold may remain capped in the near term.

Key Catalyst: Higher yields and stronger dollar = short-term headwind for gold prices.

SHORT XAUUSD

This trade plays into the current spike in U.S. bond yields and stronger USD demand following the surprise legal ruling on Trump-era tariffs. As Treasury yields rise on fears of larger deficits and tariff refunds, USD becomes more attractive. Meanwhile, JPY remains weak in a rising global yield environment, especially with the Bank of Japan holding policy loose. Political and fiscal volatility in the U.S. adds to uncertainty, but near-term price action supports USD strength vs low-yielding currencies like the yen.

Key Catalyst: U.S. court ruling weakens trade policy certainty and lifts yields bullish USD, bearish JPY.

We see a tactical opportunity to short CHF/JPY based on a shift in both macro fundamentals and central bank dynamics. The Swiss franc has lost much of its prior haven appeal following the Swiss National Bank’s (SNB) surprise rate cut in March and its clear signal that further easing remains on the table. This dovish stance contrasts sharply with the Bank of Japan’s (BoJ) gradual normalization path. While the BoJ remains cautious, it has begun exiting its ultra-loose monetary policy framework, opening the door to further policy tightening, especially if inflation and wage growth show persistence.

From a valuation standpoint, the franc remains historically overvalued relative to the yen on a real effective exchange rate (REER) basis. As yield differentials compress between the two currencies, this overvaluation looks increasingly difficult to justify. Additionally, safe-haven flows previously a key tailwind for CHF are subsiding amid improved global risk sentiment, further undermining support for the franc.

Luca Santos

Luca Santos

Jun 16 2025

SHORT AUDCAD

Luca Santos

Jun 16 2025

LONG USDJPY

Luca Santos

Jun 13 2025

LONG GOLD

Luca Santos

Jun 13 2025

SHORT AUDCAD

Luca Santos

Jun 11 2025

SHORT AUDCJPY

1

Luca Santos

Jun 11 2025

SHORT USDCHF

Luca Santos

Jun 10 2025

SHORT USDJPY

Luca Santos

Jun 05 2025

LONG EURAUD

Luca Santos

Jun 05 2025

SHORT USDCHF

Luca Santos

Jun 03 2025

SHORT XAUUSD

Luca Santos

Jun 03 2025

LONG USDJPY

Luca Santos

Jun 02 2025

SHORT CHFJPY