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The Forex market operates 24 hours a day, five days a week, across various global financial centers. Among these, the Sydney and Tokyo sessions play an important role in determining currency values and generating trading opportunities for forex traders. The Sydney session begins the trading week, followed by the Tokyo session, which is the starting point for the Asian trading day.
Given the unique characteristics of these two sessions, it’s crucial for traders to understand which currency pairs are the most actively traded and profitable during these hours. In this article, we will explore the best currency pairs to trade during the Sydney and Tokyo sessions, including the key factors that make them suitable for these sessions, as well as tips on how to capitalize on them.
The Sydney and Tokyo Trading Sessions
Sydney Trading Session (5:00 PM GMT to 2:00 AM GMT)
The Sydney session marks the opening of the global Forex market on Sunday evening (GMT) and runs until early Monday morning. While it is typically less volatile than other sessions, the Sydney market is crucial for setting the tone for the week ahead. This session is especially active for Australian currency pairs, such as the AUD/USD, given that Sydney is the financial capital of Australia. Traders focus on key Australian economic data releases during this session, and global economic developments may influence currency movements.
Tokyo Trading Session (12:00 AM GMT to 9:00 AM GMT)
The Tokyo session is the second major trading session after Sydney and kicks off the Asian trading day. Japan, as the third-largest economy in the world, has a significant influence on global Forex markets. The Tokyo session tends to have higher liquidity than the Sydney session, and while it is typically quieter than the London or New York sessions, it is still a critical time for trading, particularly for the Japanese yen (JPY) and other Asian currencies.
5 Best Currency Pairs for Sydney and Tokyo Sessions
During the Sydney and Tokyo sessions, the focus shifts towards the currencies of the Asia-Pacific region, particularly the Australian dollar (AUD), New Zealand dollar (NZD), and Japanese yen (JPY). These currencies are more actively traded during these hours, as they are closely tied to the economic developments in these regions.
1. AUD/USD (Australian Dollar/US Dollar)
The AUD/USD is one of the most popular currency pairs for traders during the Sydney session, as the Australian dollar is directly impacted by economic developments in Australia, including trade, interest rates, and commodity prices. The Sydney session, which is the start of the global trading week, often sees early price movements in the AUD/USD pair based on overnight news from Asia or the U.S.
Why It’s the Best Pair for the Sydney Session
Direct Economic Connection: The Australian economy has strong ties to Asia, especially China, which is a key trading partner. As a commodity-based currency, the AUD is heavily influenced by the prices of commodities like iron ore, coal, and gold. The Sydney session is crucial for reflecting the first price movements after market openings.
Liquidity: While not as liquid as the EUR/USD or GBP/USD, the AUD/USD sees decent liquidity during the Sydney session, especially around major Australian economic releases, such as GDP, employment reports, and interest rate decisions from the Reserve Bank of Australia (RBA).
Lower Volatility: The Sydney session is often less volatile than the later London and New York sessions, but this can be an advantage for scalpers or traders looking to trade smaller price movements.
2. AUD/JPY (Australian Dollar/Japanese Yen)
The AUD/JPY pair is another great option for traders during the Sydney and Tokyo sessions. Both the Australian dollar and Japanese yen are heavily influenced by regional economic conditions, particularly in Asia, which makes this pair ideal for the Tokyo session.
Why It’s the Best Pair for the Tokyo Session
Liquidity During Tokyo Hours: During the Tokyo session, the liquidity for the AUD/JPY pair increases significantly. Japan is one of Australia’s largest trading partners, and this pair often sees increased activity due to the close economic relationship between the two countries.
Economic Events and Data Releases: Key events that impact the AUD/JPY include Japanese economic reports, such as the Tankan Business Survey, trade balance data, and Japanese GDP growth. Similarly, any news from the RBA can have a significant impact on the AUD.
Volatility and Price Moves: The Tokyo session can often see price movements in the AUD/JPY pair due to carry trades. The low-interest rates in Japan have made the yen a popular funding currency for carry trades, which in turn impacts AUD/JPY volatility.
3. NZD/USD (New Zealand Dollar/US Dollar)
The NZD/USD pair is another popular choice during the Sydney session. The New Zealand dollar, like the Australian dollar, is a commodity-based currency, meaning it’s often sensitive to global economic trends and changes in commodity prices.
Why It’s the Best Pair for the Sydney Session
Commodity Sensitivity: As with the AUD/USD pair, the NZD/USD is strongly correlated with the price of global commodities, including dairy, which is New Zealand’s largest export. During the Sydney session, early price movements are often a reaction to commodity price changes.
Similar Economic Influences: New Zealand shares similar economic conditions with Australia, making the NZD/USD a strong pair for trading during the Sydney session. Both currencies are influenced by developments in Asia, and their movements tend to align.
Lower Volatility: Much like the AUD/USD, the NZD/USD tends to exhibit lower volatility during the Sydney session compared to the London and New York sessions, which is ideal for traders who prefer more predictable price action.
4. JPY/USD (Japanese Yen/US Dollar)
The Japanese yen is heavily traded during the Tokyo session, as Japan is one of the world’s largest economies, and the yen is one of the most liquid currencies globally. The JPY/USD pair is particularly active during the Tokyo session due to Japan’s significant influence on the Asian economy.
Why It’s the Best Pair for the Tokyo Session
Major Economic Data and Bank Influence: The Japanese economy is strongly tied to the global markets, particularly in manufacturing, trade, and export. Key data releases from Japan, such as GDP, trade balances, and inflation figures, often cause substantial movement in the JPY/USD pair.
Carry Trade Influence: The JPY is often used in carry trades, where traders borrow yen at low interest rates and invest in higher-yielding currencies, such as the AUD, NZD, and other Asian currencies. This activity leads to significant volatility and potential profits in the JPY/USD pair during the Tokyo session.
Higher Liquidity: Due to the high liquidity in the JPY/USD pair, this currency pair provides ample opportunities for day traders and short-term traders to capitalize on price movements.
5. EUR/JPY (Euro/Japanese Yen)
While EUR/USD is typically more active during the London session, the EUR/JPY pair can be quite profitable during the Tokyo session as well. Since the yen plays a significant role in the Asian economy, and the euro is the second most traded currency globally, the EUR/JPY can experience significant price moves when key economic reports or news releases come out.
Why It’s the Best Pair for the Tokyo Session
Euro Influence: The euro, being influenced by European economic conditions, reacts strongly to major data releases from the Eurozone. When combined with the JPY, the EUR/JPY can experience increased liquidity and volatility during the Tokyo session.
Japanese Economic Data Impact: Any significant shifts in the Japanese economy, such as changes in interest rates or inflation, directly affect the JPY. These factors can cause substantial movement in the EUR/JPY pair.
Carry Trades: Similar to AUD/JPY and NZD/JPY, the EUR/JPY pair is commonly traded in the carry trade strategy, where investors borrow yen to invest in higher-yielding currencies. This provides opportunities for significant price movements during the Tokyo session.
Conclusion
The Sydney and Tokyo trading sessions offer excellent opportunities for traders, particularly those who specialize in currency pairs involving the Australian dollar, New Zealand dollar, and Japanese yen. The best pairs for these sessions include AUD/USD, AUD/JPY, NZD/USD, JPY/USD, and EUR/JPY, with each offering unique advantages based on liquidity, volatility, and economic factors.
Traders should be aware of the economic conditions in both Australia and Japan, as well as global commodity price movements, to maximize trading opportunities. Understanding the dynamics of these two trading sessions allows traders to capitalize on the first price moves of the week and navigate the unique market conditions of the Asia-Pacific region. By focusing on the right currency pairs and applying sound trading strategies, traders can profit from the opportunities presented during the Sydney and Tokyo sessions.
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