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Correlations With Global Risk Sentiment Variables Rise

AUD

A$ correlations have moved lower with yield differentials over the past week. Correlations with risk metrics have risen but remain below historical norms. The table below presents AUD/USD correlations with traditional macro drivers for the past week and month (in level terms). Note correlations with yield differentials are based off government bond yield spreads.

  • Yield differentials have been volatile in recent weeks, but without a strong trend. The two year AU-US 2yr spread is last around -114bps, up from early March lows near -163bps, but we did get as high as -72bps in recent weeks. The 10yr spread is closer to recent lows though, around -28bps.
  • Correlations for the past week are back to negative territory, but remain positive for the past month in terms of yield differentials.
  • With global commodities, correlations have risen, particularly in terms of base metals, but we remain below historical averages. The correlation with iron ore is back in negative territory.
  • Correlations with global equities/risk gauges have also normalized somewhat, but remain below historical averages, much like global commodity indices.

Table 1: AUD/USD Correlations

1wk1mth
AU-US 2yr Spread-0.270.23
AU-US 5yr Spread-0.270.46
AU-US 10yr Spread-0.420.47
Global Commodities0.270.55
Global Base Metals0.510.72
Iron ore-0.71-0.14
Global equities 0.480.55
US VIX index-0.31-0.24

Source: MNI - Market News/Bloomberg

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