A$ Correlation With Yields Dips, Rebounds For Commodities

AUD/USD correlations have bumped around once again over the past week. Since last week's update, correlations with yield differentials have edged down, while bouncing for aggregate commodities.

• The table below presents the levels correlations for AUD/USD and various cross asset drivers for the past week and month.
• The past week has seen lower correlations with yield differentials, although we remain in positive territory. The correlation remains strongest at the front end. The AU-US 2yr spread has fallen sharply over the past week, back to -28bps. We remain above mid-month lows though.
• RBA Governor Lowe stating either a 25 or 50bps hike at the July meeting would be considered (i.e not a 75bps move), and questions over how high the terminal rate will go, have seen the 2yr AU yield fall by around 56bps over the past week. Weaker global growth fears have also weighed.
• On this this latter point, the A$ correlation with aggregate commodities has rebounded strongly. Much of the focus this week has been on slumping base metal prices amid on-going data misses in the US and the EU.
• The correlation with iron ore remains fairly weak though and has also slipped against global equities. The A$ hasn't enjoyed much benefit from better global equity sentiment in the past week.

Table 1: AUD/USD Correlations