A$ Correlations Rise With Yield Differentials, Lower For Iron Ore, Global Equities
AUD/USD correlations have swung back in favour of rate differentials. This has come at the expense of global equities and iron ore prices. The table below plots the level correlations between AUD/USD and key macro drivers for the past week and month.
- Correlations have shot higher with government bond yield differentials over the past week, with the 5yr spread recording the firmest correlation. This also holds over the past month as well.
- Yield differentials remain skewed against the AUD, particularly in light of recent Fed rhetoric, which has pushed higher terminal rate expectations for next year. We are away from trough points for the year though
- Correlations with global commodities remains fairly firm. Recent weakness in these indices has coincided with the A$ moving off recent highs.
- The same can't be said for iron ore, which has continued to recover, despite some softness in metals elsewhere. Correlations with global equities are also down a touch, more so with the VIX though.
Fig 1: AUD/USD Correlations
|2yr yield differential||0.89||-0.14|
|5yr yield differential||0.97||0.50|
|10yr yield differential||0.89||0.44|
|Global commodity prices||0.80||0.73|
|US VIX index||0.57||-0.75|
Source: MNI - Market News/Bloomberg