12/10/2020 – G10 FX Correlations Weekly

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

  • Rolling 30-day correlations between G10/USD and the S&P 500 broadly increase following what was for the most part a “risk on” week.
  • DXY’s negative rolling 30-day correlation to gold increases to highest levels in over a year of around -0.75.
  • WTI’s positive 30-day rolling correlation to most G10 USD majors drops around 0.1, but G10 FX correlations to commodities more broadly increases on the week, with DXY’s negative correlation to the Commodity Index back below -0.5.

G10 FX to risk

G10 USD major pairs have broadly seen their 30-day rolling correlations to the S&P 500 rise over the past week, following what was, for the most part, a strongly risk on week (the S&P 500 performing strongly while FX havens USD and JPY struggled); as can be seen in Chart 1, EURUSD, GBPUSD, AUDUSD, CADUSD, CHFUSD, NOKUSD and SEKUSD all saw the strength of their correlations to the S&P 500 increase, while only only NZDUSD and USDJPY saw theirs weaken/reverse.

CADUSD takes the top spot as having the highest correlation to the S&P 500 among the G10 USD majors, with a correlation of around +0.7 over the last 30 days. NZDUSD, AUDUSD, USDNOK and GBPUSD are all not far behind, with their rolling 30-day correlations to S&P 500 price action around +0.6.

JPY major pairing tell a slightly different story; as can be seen in Chart 2, NZDJPY still has the highest correlation to the S&P 500 out of the G10, followed by AUDJPY and GBPJPY then CADJPY. As with the USD major pairings, JPY major pairings also saw their correlations to the S&P 500 over the last 30 days increase last week.

Back to USD majors; EURUSD and CHFUSD are up next. Their correlations to the S&P 500 continue to be much lower than the more “risk sensitive” G10 crosses, but did see a reasonable jump last week. EURUSD’s positive 30-day correlation to the S&P 500 is now over +0.3, while CHFUSD’s is just under +0.4, both driven primarily by an increase in the strength of the dollar’s negative correlation to the S&P 500 to just under -0.4 (seen below in the DXY).

Finally, JPYUSD continues to have virtually now correlation to price action in the S&P 500, as has been the case for at least the last three months.

Chart 1
Chart 2

G10/USD to gold

It was a choppy week for gold last week, with the precious metal slipping to lows around $1870. However, gold finished the week strongly and with gains of around $30 (taking it to around $1930). Strong gains in the precious metal coupled with broad dollar weakness has seen its correlations to USD major pairings mostly increase over the last week.

AUDUSD, NZDUSD, EURUSD, SEKUSD and NOKUSD all saw their 30-day rolling correlations to gold rise above +0.7, while CHFUSD rose above +0.6 from closer to +0.5 at the start of the month. CADUSD and GBPUSD have weaker 30-day correlations to gold, but saw theirs rise above +0.4 by the end of last week. Bucking the trend was JPYUSD, which now has the lowest correlation to gold out of the G10 majors of under +0.4, having declined from about +0.5 since the start of the month.

As a result of the above, DXY’s negative 30-day rolling correlation to the precious metal has stormed to its highest in over a year at around -0.75. USD price action thus remains one of the dominant considerations when looking at gold.

G10/USD to WTI

Crude oil markets put in a strong performance last week, with supply side dynamics taking the driving seat at times more than the broader appetite for risk; for example, markets were sent into risk off (S&P 500 lower, USD higher) on Tuesday evening when US President Trump announced an end to US fiscal stimulus talks with the Democrats, but WTI still finished the day higher. Meanwhile, on Friday, WTI prices fell despite a strong rally in stocks and largest one-day decline in the DXY since August. In other words, correlations between WTI and broader risk appetite (thus also to G10 FX markets) over the last 30-days slipped due to last week’s price action;

GBPUSD continues to have the strongest 30 day correlation to WTI, followed by CADUSD and NOKUSD, all of close to +0.4, each down about 0.1 on the week. NZDUSD, SEKUSD, CHFUSD, AUDUSD and EURUSD all also saw their positive 30 day correlations to WTI drop around 0.1 last week and are clustered between around +0.2 to +0.3. JPYUSD continues to have the weakest 30-day correlation to WTI of not to far from 0, as has been the case since early August.

G10/USD to Commodity Index

WTI makes up around 25% of Refinitiv’s Commodity Index. Despite this (and the decline in the WTI to G10 FX 30-day correlation last week), correlations between the Commodity Index and G10 USD major pairings rose last week.

As is normally the case, AUDUSD, NZDUSD, NOKUSD and CADUSD continue to have the highest 30-day correlations with commodities in general, and with the Commodity Index of between +0.6 and +0.7. Elsewhere, SEKUSD and GBPUSD saw their positive correlations to the commodity index rise to just under +0.6 and EURUSD and CHFUSD to above +0.4, each up around 0.1 compared to last week. Again, JPYUSD bucks the trend and has seen its positive corrrelation to the Commodity Index over the past 30 days drop to below +0.2. DXY has seen its negative rolling 30-day correlation to commodities strengthen to above -0.5.

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