Correlations With Yield Spreads Rebound, AU-US 2yr Spread Around Multi-Decade Lows

A$ correlations, on a short term basis, with yield differentials have rebounded. The table below presents the correlations for the past week and month (in levels terms) for AUD/USD against traditional macro drivers.

• Our last update had short term correlations with yield differentials in negative territory. As is usually the case though, the correlations have picked back up during RBA week.
• Yesterday's dovish RBA hike has also likely increased focus on the yield differential outlook from an AUD standpoint. The AU-US 2yr spread is threatening to break sub -100bps. We have spent little time below this level from an historical standpoint, see the second chart below.
• AUD/USD correlations with commodities and equities are generally lower compared to late September. We remain in positive territory for the most part though.
• The most notable pullback is for iron ore, although China onshore markets are closed this week.

Table 1: AUD/USD Correlations (Levels)

Source: MNI - Market News/Bloomberg

Fig 1: AU-US 2yr Government Bond Yield Spread

Source: MNI - Market News/Bloomberg