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Australian Dollar and Canadian Dollar Alternatives to Gold, Silver

Australian Dollar and Canadian Dollar Alternatives to Gold, Silver

2012-01-24 17:00:00
David Rodriguez, Head of Product
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The Australian Dollar remains strongly correlated to the SPDR Gold Trust (GLD), while the USDCAD’s link to the iShares Silver Trust (SLV) is similarly strong.

The short-term correlation between the AUDUSD and Gold Prices trades near record strength and much the same can be said for the USDCAD and Silver. Long positions in the Australian Dollar and Canadian Dollar against the US Dollar (ticker: USDOLLAR) likewise offer the advantage of interest rate payments. This stands in contrast to holding long positions in Gold, Silver, Crude Oil and other commodities; there are carrying costs with buying.

Forex Correlations Summary

View forex correlations to the SPDR Gold ETF Trust (GLD), United States Oil Fund ETF (USO), SPDR Dow Jones Industrial Average ETF Trust (DIA), UK FTSE 100 Index, and IShares Silver Trust ETF (SLV) prices.

GLD

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

-0.15

-0.13

-0.82

0.93

-0.44

0.96

-0.74

1 Month

0.42

0.55

-0.19

0.67

-0.44

0.59

-0.58

3 Month

0.52

0.52

-0.26

0.65

-0.58

0.67

-0.58

1 Year

0.12

0.20

-0.11

0.25

-0.18

0.21

-0.24

USO

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.63

-0.76

0.21

0.00

-0.88

0.40

-0.09

1 Month

0.41

0.39

-0.08

0.51

-0.58

0.58

-0.46

3 Month

0.42

0.39

-0.16

0.57

-0.50

0.51

-0.49

1 Year

0.44

0.36

-0.02

0.58

-0.52

0.46

-0.50

DIA

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

-0.06

0.92

-0.14

0.22

0.41

-0.05

-0.38

1 Month

0.58

0.55

-0.01

0.64

-0.63

0.50

-0.61

3 Month

0.77

0.69

-0.39

0.90

-0.87

0.83

-0.84

1 Year

0.64

0.53

-0.06

0.79

-0.81

0.74

-0.70

FTSE100

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

0.57

-0.87

0.56

-0.48

-0.64

-0.09

0.39

1 Month

0.56

0.38

-0.21

0.65

-0.65

0.59

-0.58

3 Month

0.66

0.50

-0.39

0.83

-0.75

0.80

-0.74

1 Year

0.46

0.35

-0.01

0.69

-0.66

0.62

-0.57

SLV

EURUSD

GBPUSD

USDJPY

AUDUSD

USDCAD

NZDUSD

USDOLLAR

1 Week

-0.87

0.55

-0.70

0.57

0.73

0.22

-0.21

1 Month

0.53

0.60

-0.14

0.74

-0.61

0.65

-0.67

3 Month

0.62

0.55

-0.29

0.70

-0.66

0.68

-0.65

1 Year

0.28

0.29

-0.06

0.40

-0.34

0.34

-0.37

forex_correlations_us_dollar_canadian_dollar_australian_dollar_body_Picture_1.png, Australian Dollar and Canadian Dollar Alternatives to Gold, Silver

Australian Dollar/US Dollar Exchange Rate (lhs)

SPDR Gold Trust (rhs)

Correlation between Australian Dollar/US Dollar versus SPDR Gold Trust

The Australian Dollar’s correlation to Gold prices and the SPDR Gold Trust (GLD) has seen steady strength through the past several months. It seems that a renewed bullish push in Gold has likewise coincided with fresh Aussie Dollar strength. And though the AUDUSD remains quite sensitive to moves in the US S&P 500 and broader financial market risk appetite, we expect that its correlation to Gold may remain strong.

Viewed in this light, the AUDUSD seems an attractive proxy to holding positions in gold. Whereas there is a carrying cost associated with holding long positions in Gold, long Australian Dollar/US Dollar positions will actually produce net interest payments.

The clear caveat is that any sharp sell-offs in the S&P 500 would likely break the AUDUSD’s short-term link to Gold prices, but the S&P 500 Volatility Index (VIX) currently show the lowest volatility expectations since July. Slow stock market moves pose little risk to the AUDUSD-GLD correlation.

forex_correlations_us_dollar_canadian_dollar_australian_dollar_body_Picture_2.png, Australian Dollar and Canadian Dollar Alternatives to Gold, Silver

US Dollar/Canadian Dollar Exchange Rate (lhs)

iShares Silver Trust (SLV) (rhs)

Correlation between US Dollar/Canadian Dollar Exchange Rate and iShares Silver Trust (SLV)

The Canadian Dollar remains highly correlated to oil prices and broader commodity prices, seen clearly through its strong short-term link to moves in silver markets. The 20-day correlation between the USDCAD and spot Silver prices is trading near its strongest levels since late 2010. It is perhaps surprising to note that the USDCAD has proven itself more sensitive to moves in silver markets than to its more traditional correlation—crude oil prices.

We see the Canadian Dollar as an attractive proxy to positions in Silver prices and other commodity markets. Canadian interest rates are slightly above those in the United States, and USDCAD-short positions pay modest interest. Such positions would give you exposure to moves in Silver, Oil, and Gold prices—where you would otherwise pay interest to stay long.

The Canadian Dollar should continue higher (USDCAD lower) if silver prices and crude oil prices trade to fresh highs.

--- 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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