AUD/USD correlations with yield differentials have shot higher, particularly relative to other traditional macro drivers. The table below presents the 1 week and past month levels correlations for AUD/USD against a host of macro drivers (note for yield spreads this reflects government bond yield spreads).

• The past week has seen a strong rebound in short term AUD/USD correlations with yield spreads. We sit slightly higher at the 2yr point, but are elevated across the 5 and 10yr space as well. Longer term correlations are also holding up.
• The sharp repricing in Fed expectations post the SVB collapse is weighing on broader USD sentiment, which the A$ is benefiting from. Still, we are mindful of how far US yields have come in such a short period. Any sharp rebound in US yields could cap the A$ rebound to a degree.
• Other correlations are much lower for global commodities, although are higher with iron ore in the past week, less so for the past month. The global equity correlation is also much weaker than historical norms.

Table 1: AUD/USD Correlations (Levels)

Source: MNI - Market News/Bloomberg