A$ Correlations Swing Sharply Back Towards Yield Differentials

AUD/USD correlations have swung sharply back in favour of yield differentials over the past week. The table below presents the past 1 week and 1 month correlations (levels based) for AUD/USD with key macro drivers.

• As has typically been the case in recent months, short-term correlations between the A$ and yield differentials tend to spike during RBA meeting weeks. This week has proven no different, with the added impetus from the US Fed meeting overnight.
• The general trend in spreads has been to the downside across all parts of the curve, as the Fed delivers a more hawkish backdrop relative to the RBA.
• If history is a guide, correlations should swing back in favour of global equities/commodities over the coming week.
• Correlations for the past week with these variables is noticeably lower, particularly for global commodities, likely due to higher oil prices, which has kept aggregate commodity indices elevated. The correlation with base metals is only just positive though.

Table 1: AUD/USD Correlations (Levels Based)

Source: MNI - Market News/Bloomberg