Forex Correlations Show US/Dollar Japanese Yen Highly Sensitive to DJIA

The correlation between the US Dollar/Japanese Yen pair and the Dow Jones Industrials Average is currently near its highest in at least 10 years, as increasingly risk-averse markets dominate price action in the USDJPY. Every downward move in global equity indices encourages traders to close short positions in the low-yielding Yen—fully consistent with the broader theme of financial deleveraging. Continued losses in the Dow and other major markets would likely lead to further JPY rallies.  

The relationship between the Australian dollar and commodity prices has never been stronger; a rolling 50-day correlation between the AUDUSD and Reuters/Jefferies CRB Index now trades at its highest since the Aussie became a free-floating currency in 1984. Commodity markets have seen dramatic declines through the recent financial crisis, and the combination of falling raw materials prices and declining global equity indices has dealt a double-whammy  to the risk-sensitive AUD.

Euro/US Dollar and the
Price of Gold

Gold has lost much of its correlation to the US dollar and the Euro/US dollar pair, as global risk aversion has become the main driver of gold price action. Indeed, we see that gold prices have very recently rallied sharply despite similarly pronounced gains in the US dollar. The simple explanation is that gold has not traded as a hedge against dollar weakness but a store of value through clear financial market duress.