US Dollar Remains Correlated to S&P 500, Ignores Interest Rates

Euro/US Dollar versus
US S&P 500 Index

The short-term link between the Euro/US Dollar currency pair and the US S&P 500 remains near all-time highs. Forex markets continue to treat the US Dollar as a safe-haven currency—bidding it higher in times of financial market duress. At the same time, traders are likely to sell the Euro during the same moments of market tension. The net result is that the EUR/USD moves nearly lock-step with the S&P and similar risk barometers. Recent equity market rallies have clearly benefited the EUR/USD, but any signs of turnaround could easily derail its medium-term rally.

Australian Dollar/US Dollar and
Reuters CRB Commodity Price Index

The Australian dollar remains one of the most commodity-dependent currencies in the G10, and it is no surprise to see the AUD/USD-CRB Commodities Index correlation trade near record-highs. In fact, the 20-day correlation coefficient now stands at an impressive 0.76—implying that nearly 60 percent of all AUD/USD variation can be explained by commodity price movements. Commodity price sensitivity to global financial risk sentiment leaves it in the same league as the risk-sensitive Australian Dollar. Of course it’s likewise significant to note the Australian economy’s dependence on commodity exports. We expect the strong correlation to persist through the foreseeable future.

Other Notable Forex Correlations

US Dollar Index and
US 10-Year Treasury Note

The US Dollar has increasingly moved away from interest rate developments, and indeed its correlation to US Treasury Yields trades near the neutral zero mark. A correlation of zero implies that there is no evident numerical link between two series, and recent price action backs up that assertion. The USD has proven far more sensitive to developments in equity markets. Though Treasury Yields and the S&P are historically correlated, recent price action suggests that said markets are increasingly disconnected.