05/10/20 – Correlations Weekly

(30-day rolling Pearson correlations calculated to the 2nd of October 2020)

  • USD’s modest negative correlation (and G10/USD correlations in general) to S&P 500 broadly stable since mid-September. However, correlations of more risk sensitive G10/USD pairs to S&P 500 substantially higher than start of September.
  • EUR the exception; correlation to US and European equities broadly stable since early September and weaker than over past few months.
  • DXY’s negative correlation to gold at multi-month highs.
  • JPY increasingly in the USDJPY driving seat in recent weeks.
  • AUD’s positive correlation to gold picking up, to crude oil falling in recent weeks.

G10/USD vs S&P 500

Since mid-September, rolling 30-day G10 FX correlations to the S&P 500 have been broadly stable; AUDUSD and NZDUSD are the two G10 USD major crosses currently most sensitive to US equities, with positive correlations to the S&P 500 of above +0.6. GBPUSD, NOKUSD and SEKUSD are the next most sensitive dollar majors to US equities, with positive correlations to the S&P 500 of above +0.5. EURUSD and CHFUSD have a much more modest positive correlations to the S&P 500 of around +0.2, while USDJPY has had virtually no correlation to the US equity index since prior to the start of July and DXY currently has a negative 30-day correlation of just under -0.2.

Rolling 30-day correlations between G10 dollar majors to the S&P 500 declined throughout August (a time of seemingly excessive equity market optimism), culminating in the DXY’s typically negative 30-day correlation with the S&P 500 falling to 0 at by the start of September. However, amid a sharp correction lower in US equities at the start of September, correlations between the more risk sensitive USD majors (as well as CHFUSD) and the S&P 500 rose sharply and the negative DXY/S&P 500 relationship has reasserted itself, albeit not quite back to July levels (when the negative correlation was mostly below -0.4). This is mainly because, despite a rise in correlations to the S&P 500 of other USD majors in the first half of September, EURUSD’s 30-day rolling correlation to the major US equity index has remained broadly unchanged around +0.2. In other words, EUR’s correlation to US equities has fallen over the past three months.

Chart 1

EUR vs risk

EUR does not just have a weak correlation to US equities, but also companies based a little closer to home. EURUSD and EURJPY have virtually no correlation to the Stoxx 600, while both have weak correlations to the S&P 500 of below +0.2. EURGBP has a strong negative 30-day correlation to the S&P 500 of below -0.5, but that is driven by the much more risk sensitive GBP. EURGBP, however, has a much weaker relationship to the Stoxx 600.

Chart 2

G10/USD vs Gold

Most G10 dollar majors have a strong correlation with gold, almost entirely driven by the strongly negative correlation between the precious metal and the USD itself (seen in DXY’s below -0.6 correlation to gold). Indeed, DXY’s negative 30-day rolling correlation to gold is at multi-month highs. Aside from USD, AUD, EUR, NOK and SEK (when looked at in their USD major pairing) currently have the highest correlations to gold, while GBP and CAD have the lowest.

Chart 3

DXY

A closer look at DXY correlations; as noted prior, the dollar index has currently has a strong negative 30-day correlation to gold of under -0.6. Its negative 30-day correlation to the Refinitiv Commodity Index is also fairly strong, at below -0.4, while, as discussed its negative correlation to the S&P 500 is more modest at just under -0.2. Elsewhere, DXY has had virtually no correlation to price action in the US 10 year bond future over the past 4 weeks.

Elsewhere, looking at USD vs other “haven” currenies; JPY appears to be driving dynamics in USDJPY more and more; the cross’ correlation to DXY has been falling since the start of September and is only about +0.3. Conversely, USD continues to sit in the driving seat of the USDCHF cross; its correlation to DXY remains close to +0.8.

Chart 4

GBP to risk

As seen earlier, GBP has a strongly positive correlation to US equities, with this also being seen across its crosses with JPY and EUR, as well as in GBPUSD. The 30-day rolling correlation between GBP and US equities weakened substantially in August, but rebounded strongly in early September.

Chart 5

CAD

CAD not only has a strong positive 30-day correlation to US equities, but also to front-month WTI and Brent oil prices, as well as the Refinitiv Commodity Index; USDCAD’s 30-day negative correlation to WTI and Brent is currently around -0.5, up a little from -0.6 lows set in early September. Meanwhile, the negative 30-day correlation between USDCAD and the Commodity Index is currently close to -0.6, down from around -0.4 at the end of August.

Chart 6

AUD

AUDUSD has a strongly positive correlation to gold prices, which, until the second half of September, this was being driven largely by USD’s negative relationship with the precious metal. Until the second half of September, the 30-day rolling correlation of AUDJPY to gold was very weak. However, over the last few weeks, the positive correlation of AUDJPY to gold has picked up significantly (to current levels around +0.4), sending AUDUSD’s positive correlation to gold above +0.6.

Also over the last few weeks, AUD’s correlation to crude oil (WTI) has been on the decline; AUDUSD and AUDJPY have both seen their positive 30-day correlation to WTI drop below +0.3 from closer to +0.5 at the mid-point of last month. Currently, AUD’s correlation to oil is as low as it has been at any point since the start of July.

The same cannot be said for AUD’s positive correlation to the Refinitiv Commodity Index, which has strengthened substaintially sicne the start of September (AUDUSD to above +0.6 from below +0.4 and AUDJPY to above +0.4 from close to 0).

Chart 7

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