AUD/USD Correlations Remain Strong With Yield Differentials

AUD/USD correlations remain quite firm with yield differentials, particularly over shorter tenors. The picture is more mixed for other asset classes.

• The table below presents the levels correlations for AUD/USD and various cross asset drivers for the past week and month.
• As was the case with our last update, correlations with yield differentials remains quite firm, over 80% for the past week. It is a more mixed picture for the past month, but the trend is generally higher from a correlation standpoint.
• AU-US yield spreads have moved higher over the past week, albeit with a very volatile trend. The 2yr spread is back to +10bps from -50bps or so at the start of the week. The 10yr spread is up to +85bps, highs back to early 2016.
• For commodities, correlations are weaker, particularly for iron ore. The metal has fallen sharply this week, to be back at $125, a 13.6% dip from recent highs.
• Correlations with global equities are higher, but still below the equivalent correlations with yield spreads for the past week.
• The divergence between AUD/USD and global equities is noticeable over recent sessions.
• The A$ is comfortably off highs against safe haven currencies though, so the weaker equity story is likely to be more influential on these cross rates.

Table 1: AUD/USD Correlations

Source: MNI - Market News/Bloomberg