I lol'd
I think in situations like this it's all about context. When you see a person using/holding a knife, you should first ask questions like "where are we? are we in a rough part of town? what time of the day is it? what does the person look like? do they look shady or suspicious? do they look agitated or aggressive? are they using the knife in a reasonable manner?" etc... If the lady was reasonable, and asked herself these simple questions before confrontation, she would probably find she has no reason to fear. Notice the type of knife itself doesn't matter all that much; the context of the environment is much more important. The knife is just the object. You must take into consideration the relationships between the knife, its user, and the environment at hand in order to make any reasonable assumptions about what the person is doing or intends to do with the knife (or any object for that matter).
If it would be prudent of the lady to ask those above questions, then of course the same applies to you, the wielder of the knife. In fact you should scrutinize your current environment and context twice as heavily than any passer-by. You should not only be aware of what you intend to do, but more importantly, how what you are doing could be perceived by any other reasonable person. Like I said, you have to take into consideration the same contextual questions. Are all your other clothes in the laundry that day, so you threw on a grungy hoodie? Are you in a part of town where there has been recent suspicious or criminal activity? Did you have a double espresso this morning so you're a bit twitchy? You can see that, even though you're in 100% compliance with the law and have no ill intentions, someone could interpret the same situation in a totally different light. And the key thing to realize is that that interpretation could be as equally valid and reasonable as your own.
But of course, not everyone will do the above. There are unreasonable and unaware people in every camp, whether they are wielding (object A) or (object B) or no object at all. If a person is just being unreasonable or irrational it would probably be best to politely ignore or take leave of them.