A$ Correlations - Commodities Back In The Drivers Seat

AUD/USD correlations have swung back in favor of traditional drivers over the past week. The table below shows AUD/USD levels correlations with a number of key macro drivers for the past week and month. Note yield spreads are based off government bond yield spreads.

• Correlations are sharply lower with yield differentials over the past week. This fits with A$ performance, as the currency has weakened, even as yield differentials have improved (the AU-US 2yr back to -92/-93bps, versus recent lows around -117bps).
• Note though with next week's RBA decision on Tuesday, rate differentials could re-assert themselves as an AUD driver, as has historically been the case.
• Correlations with global commodity prices have rebounded sharply. The headline Bloomberg commodity index is back to late March lows and has weighed on the AUD. Base metals are at even weaker levels.
• The correlation with iron ore is also higher, albeit still sub 50% for the past week.
• Correlations are also firmer with global equities and the VIX over the past week, but remain below longer term averages for the past month.

Table 1: AUD/USD Correlations - Levels

Source: MNI - Market News/Bloomberg