Short-Term Correlations With Yield Differentials & Equities Elevated, Less So Commodities

AUD/USD correlations are mixed over the past week and month. The table below presents correlations for the past week and month in levels terms for AUD/USD against key macro drivers.

• Correlations with yield differentials (government bond basis) are firmer for the past week, but indifferent over the past month. The 2yr AU-US differential is slightly firmer, which may remain the case as we head into next week's Q4 CPI print in Australia, which is due Wednesday.
• After trending higher for much of Dec/early Jan, yield differentials have rolled back over, the 2yr spread back to -121bps, versus early Jan highs of -84bps. Yesterday's weaker than expected employment data hasn't helped this picture through the tail end of this week.
• In the commodity space short term correlations are negative, but higher for the past month, particularly for base metals and iron ore. The general trend for is firmer for commodity prices, with China demand hopes driving a more optimistic 2023 outlook.
• Risk appetite, proxied via global equities, maintains a strong correlation for the past week and month as well.

Table 1: AUD/USD Correlations

Source: MNI - Market News/Bloomberg