The Canadian Dollar boasts a strong correlation to Silver prices, while S&P 500 Volatility Index traders my look to the Australian Dollar as a proxy for positions on the comparatively illiquid VIX.
The short-term correlations between the Australian Dollar/US Dollar exchange rate the S&P 500 Volatility Index trades near record strength, while much the same can be said for the Canadian Dollar and Silver. Given that the US Dollar (ticker: USDOLLAR) holds one of the lowest interest rates of any G10 currency, long Aussie Dollar and Canadian Dollar positions against the USD offer the advantage of positive yields.
Past performance is not indicative of future results, but we believe the AUDUSD will continue to track the S&P 500 while the USDCAD is likely to retain its strong correlation to Silver prices.
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 |
AUDUSD |
USDCAD |
USDOLLAR |
||||
|
1 Week |
-0.14 |
0.15 |
-0.51 |
-0.09 |
0.62 |
0.31 |
-0.15 |
|
1 Month |
0.28 |
0.04 |
-0.34 |
0.52 |
-0.13 |
0.40 |
-0.52 |
|
3 Month |
0.50 |
0.50 |
-0.25 |
0.68 |
-0.54 |
0.68 |
-0.61 |
|
1 Year |
0.14 |
0.21 |
-0.10 |
0.25 |
-0.19 |
0.21 |
-0.25 |
|
USO |
AUDUSD |
USDCAD |
USDOLLAR |
||||
|
1 Week |
0.07 |
-0.17 |
0.80 |
0.33 |
-0.61 |
0.10 |
0.04 |
|
1 Month |
0.18 |
-0.05 |
0.17 |
0.30 |
-0.56 |
0.39 |
-0.12 |
|
3 Month |
0.33 |
0.30 |
-0.06 |
0.51 |
-0.52 |
0.46 |
-0.42 |
|
1 Year |
0.46 |
0.36 |
0.00 |
0.59 |
-0.55 |
0.48 |
-0.51 |
|
DIA |
AUDUSD |
USDCAD |
USDOLLAR |
||||
|
1 Week |
0.73 |
0.33 |
0.74 |
0.80 |
-0.97 |
0.36 |
-0.58 |
|
1 Month |
0.37 |
0.36 |
0.33 |
0.70 |
-0.56 |
0.28 |
-0.43 |
|
3 Month |
0.68 |
0.65 |
-0.20 |
0.90 |
-0.86 |
0.79 |
-0.79 |
|
1 Year |
0.64 |
0.53 |
-0.05 |
0.79 |
-0.81 |
0.74 |
-0.70 |
|
FTSE100 |
AUDUSD |
USDCAD |
USDOLLAR |
||||
|
1 Week |
0.90 |
0.61 |
0.72 |
0.95 |
-0.79 |
0.65 |
-0.85 |
|
1 Month |
0.22 |
0.19 |
0.24 |
0.50 |
-0.56 |
0.36 |
-0.21 |
|
3 Month |
0.50 |
0.44 |
-0.10 |
0.76 |
-0.70 |
0.73 |
-0.60 |
|
1 Year |
0.45 |
0.35 |
0.00 |
0.69 |
-0.65 |
0.63 |
-0.56 |
|
SLV |
AUDUSD |
USDCAD |
USDOLLAR |
||||
|
1 Week |
0.43 |
0.13 |
-0.19 |
0.18 |
0.26 |
0.20 |
-0.40 |
|
1 Month |
0.34 |
0.31 |
-0.24 |
0.64 |
-0.20 |
0.38 |
-0.61 |
|
3 Month |
0.58 |
0.50 |
-0.25 |
0.67 |
-0.61 |
0.64 |
-0.64 |
|
1 Year |
0.30 |
0.30 |
-0.05 |
0.40 |
-0.34 |
0.35 |
-0.38 |
|
Perfect Positive Correlation: |
1.00 | ||||||
|
Perfect Negative Correlation: |
-1.00 | ||||||
Canadian Dollar/US Dollar Exchange Rate (lhs)
iShares Silver Trust (rhs)
Correlation between Canadian Dollar/US Dollar versus SPDR Gold Trust
The Canadian Dollar/US Dollar exchange rate remains strongly correlated to Silver prices and broader commodity prices, offering a good proxy for comparatively less liquid precious metals markets. As part of the so-called “Commodity Dollar Bloc” alongside the Australian and New Zealand Dollars, the Canadian currency has long traded closely with raw materials prices.
As an additional benefit, current interest rates in Australia, New Zealand, and Canada are above those in the United States. If a trader bought the AUD, NZD, or CAD against the US Dollar they would stand to receive net interest rate payments. This makes trading AUDUSD, NZDUSD, and USDCAD arguably more attractive than metals prices—traders most often pay a ‘carrying cost’ to hold such positions.
Short USDCAD positions have recently traded similarly to long Silver prices. And though past performance is not indicative of future results, there are fundamental reasons for which this may continue to be the case.
Australian Dollar/US Dollar Exchange Rate (lhs)
Inverse of S&P 500 Volatility Index (rhs)
Correlation between Australian Dollar/ Exchange Rate and the Inverse of the S&P 500 Volatility Index (SLV)
The Australian Dollar remains negatively correlated to the US S&P 500 Volatility Index (VIX), offering an interesting proxy to trading volatility in the US stock market. Australia boasts the highest short-term interest rates of the G10, and Aussie Dollar/US Dollar positions offer one of the biggest interest rate differentials for major currencies.
The net result is that speculators tend to buy the AUDUSD in order to collect high yields. Yet there is no such thing as risk-free profits; the Australian Dollar tends to react to any sharp sell-offs in the S&P 500 as speculators close long positions in a hurry.
These trade dynamics suggest the Australian Dollar will remain correlated to the S&P 500 Volatility Index for some time to come. Taking a short position on the Australian Dollar/US Dollar pair would likely trade closely to a long position in the VIX. The reverse (AUDUSD long) would be similar to a short position in the VIX.
--- 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
