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Australian Dollar Remains Strong Proxy for Gold Trades

Australian Dollar Remains Strong Proxy for Gold Trades

2011-02-08 18:00:00
David Rodriguez, Head of Product
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Currency trading market correlations to Gold, the S&P 500 Index, and other key barometers for financial market risk sentiment make pairs such as the Australian Dollar/US Dollar good proxies for trading broader trends.

At the risk of excessive repetition, the Australian Dollar remains highly correlated to Gold prices as both have rallied noticeably through very recent trade. And though we could never reasonably expect or predict that they would consistently move on a tick-for-tick basis, the AUDUSD remains a good proxy for gold trades.

The Canadian Dollar has historically been a similarly good proxy for trading movements in Crude Oil prices, but said correlation has broken down noticeably amidst recent geopolitical tensions and their effects on oil futures. The Loonie has instead been quite closely linked with the US S&P 500 index—a key barometer for broader financial market risk sentiment. We may expect the two to track each other with reasonable accuracy as they are both near significant highs.

Forex Correlations Summary

Forex correlations against Oil, Gold, and the Dow Jones Industrial Average for the past 30 calendar days:

Correlations_2011-02-08_body_Picture_2.png, Australian Dollar Remains Strong Proxy for Gold Trades

Read a guide on understanding the forex correlations summary chart.

Strongest Forex Correlations

US Dollar/Canadian Dollar and S&P 500 Index

Correlations_2011-02-08_body_Picture_3.png, Australian Dollar Remains Strong Proxy for Gold Trades

The Canadian Dollar continues highly correlated to broader financial market risk sentiment—made obvious by its recent link to the US S&P 500 Index. Though the correlation previously broke down through the turn of the year, recent trading has seen the high-flying Loonie track broader market trends. We would expect any significant deterioration in the S&P to coincide with a similarly sharp upward correction in the USDCAD.

Australian Dollar/US Dollar and Gold Prices

Correlations_2011-02-08_body_Picture_5.png, Australian Dollar Remains Strong Proxy for Gold Trades

Few correlations remain quite as stable as the Australian Dollar and Gold prices, once again making the top of the list for our weekly report. Both have seen noteworthy recovery through very recent price action, and this is unlikely to be mere coincidence. The Australian Dollar remains a good proxy for trading movements in the precious metal, and we expect this to continue to be the case going forward.

Written by David Rodriguez, Quantitative Strategist for DailyFX.com

We always want to hear your feedback on new DailyFX articles. Send e-mails to drodriguez@dailyfx.com .

The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FOREX CAPITAL MARKETS® assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person’s reliance upon this information. FOREX CAPITAL MARKETS® does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FOREX CAPITAL MARKETS® shall not be liable for any special, indirect, incidental, or consequential damages, including without limitation losses, lost revenues, or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results.

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