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Correlations: Australian Dollar Trades as Alternative to Dow Jones

Correlations: Australian Dollar Trades as Alternative to Dow Jones

2011-11-22 16:00:00
David Rodriguez, Head of Business Development
Share:

The correlation between the Euro/US Dollar and the Dow Jones Industrial Average has weakened, but traders continue to look to the Australian Dollar as a strong alternative to positions in the DJIA.

The US Dollar (ticker: USDOLLAR) remains strongly linked to broader risk sentiment, and the Dow Jones FXCM Dollar Index retains its strong correlation to the Dow Jones Industrial Average itself. Else traders may want to avoid the EURUSD as a direct alternative to the Dow; the correlation has quite nearly gone to zero.

Forex Correlations Summary

View forex correlations to Gold, Oil, Dow Jones Industrial Average, UK FTSE 100 Index, and Silver prices.

Gold

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.24

0.35

0.53

0.89

-0.84

0.72

-0.55

1 Month

0.43

0.49

-0.32

0.53

-0.41

0.49

-0.51

3 Month

0.10

0.19

-0.17

0.29

-0.24

0.34

-0.27

1 Year

0.06

0.16

-0.18

0.22

-0.12

0.19

-0.22

Oil

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

-0.57

-0.54

0.52

0.02

-0.09

0.08

0.40

1 Month

0.40

0.35

-0.17

0.57

-0.29

0.43

-0.47

3 Month

0.44

0.33

-0.03

0.63

-0.58

0.54

-0.55

1 Year

0.35

0.25

-0.03

0.48

-0.45

0.33

-0.41

Dow

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.37

0.60

0.13

0.97

-0.79

0.56

-0.75

1 Month

0.85

0.79

-0.46

0.91

-0.92

0.88

-0.87

3 Month

0.82

0.68

-0.23

0.86

-0.86

0.81

-0.84

1 Year

0.61

0.49

-0.02

0.75

-0.79

0.69

-0.65

FTSE100

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

-0.20

0.19

0.53

0.69

-0.71

0.48

-0.25

1 Month

0.79

0.70

-0.54

0.90

-0.78

0.86

-0.87

3 Month

0.52

0.43

-0.15

0.72

-0.64

0.66

-0.66

1 Year

0.42

0.32

0.02

0.64

-0.63

0.57

-0.52

Silver

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.22

0.07

0.26

0.65

-0.50

0.46

-0.40

1 Month

0.61

0.55

-0.36

0.72

-0.54

0.60

-0.66

3 Month

0.29

0.23

-0.14

0.46

-0.42

0.48

-0.40

1 Year

0.23

0.26

-0.10

0.39

-0.30

0.34

-0.35

Perfect Positive Correlation:

1.00

Perfect Negative Correlation:

-1.00

dow_jones_alternatives_forex_australian_dollar_body_Picture_1.png, Correlations: Australian Dollar Trades as Alternative to Dow Jones

Dow Jones Industrial Average versus Dow Jones FXCM Dollar Index

The Euro’s correlation to the Dow Jones Industrial Average has all but fallen apart, as the DJIA has fallen sharply while the Euro/US Dollar remains roughly unchanged. It seems as though extremely one-sided EURUSD positioning may prevent it from falling to fresh lows through upcoming trade; there are apparently too many traders short the EURUSD to really force sharp moves lower.

Instead of trading the EURUSD as a proxy to the Dow Jones, traders may instead look to the seemingly unshakeable link between the Australian Dollar and the key financial market barometer.

dow_jones_alternatives_forex_australian_dollar_body_Picture_2.png, Correlations: Australian Dollar Trades as Alternative to Dow Jones

Dow Jones Industrial Average versus Australian Dollar/US Dollar Forex Pair

The Australian Dollar continues to hold its very strong correlation to the Dow Jones Industrial Average, offering an attractive proxy to holding positions in the key US equity index. In fact, several members of the DailyFX Team continue to trade the AUDUSD as a direct alternative to equities. Unlike the Euro/US Dollar, the Australian Dollar/US Dollar pair remains relatively unaffected by unpredictable headlines coming out of Europe.

That is to say—trade the Australian Dollar if you want to play pure ‘risk’ moves and want to avoid the mess surrounding European fiscal crises. We expect the AUDUSD to remain a strong proxy to trading the Dow Jones and other risky asset classes.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

To contact David, e-mail drodriguez@dailyfx.com

To be added to David’s e-mail distribution list for this and other reports, e-mail subject line “Distribution List” to drodriguez@dailyfx.com

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