A$ Correlations Rebound

In aggregate, A$ correlations have risen in recent weeks. This has been most notable for yield differentials and global equities. Correlations with commodities are holding at similar levels compared to a little over a week ago.

• The table below presents the levels correlations for AUD/USD and various cross asset drivers for the past week and month.
• The rebound in correlations with yield differentials has coincided with spreads moving back in favor of the AUD. The 2yr AU-US spread is back to -42bps, from recent wides beyond -60bps. At longer tenors there has been less improvement, but the trend is still there.
• An RBA with more work to do, i.e. at least getting to neutral (2.50%) and the Fed seemingly backing away from a very aggressive hike next week, has aided relative yield spread moves.
• Correlations with commodities aren't too different from where we were in mid July. Higher for aggregate commodities relative to iron ore.
• For global equities, there has been a strong rebound in correlations, with the A$ moving higher in line with the global equity recovery and improved risk appetite backdrop.

Table 1: AUD/USD Correlations

Source: MNI - Market News/Bloomberg