A$ Dependent On RBA Outcome, But Correlations With Commodities/Equities Also Very High

AUD/USD correlations are firmer with yield differentials over the past week, but remain below other cyclical drivers for the currency. The table below presents AUD/USD correlations for the past week and month against traditional macro drivers.

• Correlations are close to 50% on average, with AU-US government bond yield differentials. Yield differentials have been trending back in favor of the AUD in the past week, as expectations around potential RBA action today have risen, along with mixed US data (which has created a mixed US yield backdrop).
• Today's AUD fortunes will largely depend on what the RBA does or doesn't do and how it frames the outlook for monetary (the market is roughly 50% priced for a 25bps hike today).
• Still, beyond today, what commodity prices and equities do will matter for the AUD. Short term correlations with such variables and the currency sit very high, as the table below highlights.
• The move higher in iron ore is likely to remain a focus point, particularly given uncertainty around fresh stimulus in the China property sector.

Table 1: AUD/USD Correlations

Source: MNI - Market News/Bloomberg