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Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR Take the Lead

Bitcoin Price Correlations with Emerging Markets FX: USD/CNH, USD/ZAR Take the Lead

2019-11-13 14:55:00
Christopher Vecchio, CFA, Senior Strategist
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Bitcoin Price & Emerging Markets FX Correlations Overview:

  • Per the Emerging Markets Crisis Monitor, external debt-to-GDP ratios, implied FX volatility, and bond risk premia are some of the key factors that traders need to keep an eye on when looking for potential trade opportunities in EM FX.
  • Short-term correlations between bitcoin prices and various EM FX pairs has turned sharply negative in recent days, mostly due to developments along the US-China trade war front. With a resolution insight for a Phase 1 deal, Federal Reserve interest rate cut odds have fallen considerably.
  • The current 5-day correlation between bitcoin prices and USD/CNH is -0.87.

Looking for a guide on how to analyze Emerging Market Currencies (EM FX)? Read the Emerging Markets Crisis Monitor.

Per the Emerging Markets Crisis Monitor, external debt-to-GDP ratios, implied FX volatility, and bond risk premia are some of the key factors that traders need to keep an eye on when looking for potential trade opportunities in EM FX.

Countries that run have excessive external financing via their current account, foreign direct investment, and export growth, plus high external debt-to-GDP, are likely to have currencies that face difficulties. Currencies facing high implied volatility, bond risk premia, and inflation are prime contenders for weakness. Among the list of emerging market currencies that currently fit the bill for some of these criteria are: the Chinese Yuan, the Indian Rupee, the Russian Ruble, the Turkish Lira, and the South African Rand.

EM FX Reacting to Fed Rate Odds

In recent weeks, the historical relationship between bitcoin prices and EM FX has been undercut by developments along the US-China trade war front. With a resolution in sight for a Phase 1 deal, Federal Reserve interest rate cut odds have fallen considerably, and as a result, US Treasury yields have turned higher, dragging the US Dollar along. To this end, if USD/CNH turns higher again – a key barometer in the US-China trade war – then traders should begin to look for the historical relationship between bitcoin prices and EM FX to realign.

Accordingly, there have been considerable movements in the correlations between bitcoin prices and various EM FX pairs. In our last update, the 20-day correlation between the Chinese Yuan (USD/CNH) and bitcoin prices was -0.26; now it is -0.87. Similarly, the South African Rand (via USD/ZAR) has seen its 5-day correlation with bitcoin prices turn sharply negative, currently at -0.92.

Chinese Yuan (USD/CNH) vs Bitcoin (BTC/USD)Technical Analysis: Daily Chart (May to November 2019) (Chart 1)

em fx, bitcoin price, bitcoin price today, cnh bitcoin correlation, usd/cnh, usd to cnh, cnh rate

Since the start of November, USD/CNH has lost-0.25% while bitcoin prices have lost -4.4%. The current 5-day and 20-day correlations between USD/CNH and bitcoin prices are -0.87 and -0.52, respectively. On longer-term horizons, the 3-month and 6-month correlations are 0.18 and -0.22, respectively. In our last update on USD/CNH and bitcoin prices, the 3-month and 6-month correlations were -0.02 and -0.14.

em fx, bitcoin price, bitcoin price today, cnh bitcoin correlation, usd/cnh, usd to cnh, cnh rate

Indian Rupee (USD/INR) vs Bitcoin (BTC/USD)Technical Analysis: Daily Chart (May to November 2019) (Chart 2)

em fx, bitcoin price, bitcoin price today, inr bitcoin correlation, usdinr, usd to inr, inr rate

Thus far in November, USD/INR has gained 1.42% while bitcoin prices have lost -4.4%. The current 5-day and 20-day correlations between USD/INR and bitcoin prices are -0.78 and -0.22, respectively. On longer-term horizons, the 3-month and 6-month correlations are 0.55 and -0.22, respectively. In our last last update on USD/INR and bitcoin prices, the 3-month and 6-month correlations were 0.48 and -0.14.

em fx, bitcoin price, bitcoin price today, inr bitcoin correlation, usdinr, usd to inr, inr rate

Among the emerging market FX discussed in this report, USD/INR has the most significant 3-month correlation with bitcoin prices.

Russian Ruble (USD/RUB) vs Bitcoin (BTC/USD)Technical Analysis: Daily Chart (May to November 2019) (Chart 3)

em fx, bitcoin price, bitcoin price today, rub bitcoin correlation, usdrub, usd to rub, rub rate

Since the start of November, USD/RUB has gained 0.4% while bitcoin prices have lost -4.4%. The current 5-day and 20-day correlations between USD/RUB and bitcoin prices are -0.81 and -0.30, respectively. On longer-term horizons, the 3-month and 6-month correlations are 0.47 and -0.07, respectively. In our last update on USD/RUB and bitcoin prices, the 3-month and 6-month correlations were 0.47 and -0.16.

em fx, bitcoin price, bitcoin price today, rub bitcoin correlation, usdrub, usd to rub, rub rate

Turkish Lira (USD/TRY) vs Bitcoin (BTC/USD)Technical Analysis: Daily Chart (May to November 2019) (Chart 4)

em fx, bitcoin price, bitcoin price today, try bitcoin correlation, usdtry, usd to try, try rate

Thus far in November, USD/TRY has added 0.73% while bitcoin prices have lost -4.4%. The current 5-day and 20-day correlations between USD/TRY and bitcoin prices are -0.43 and -0.55, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.27 and -0.53, respectively.In our last update on USD/TRY and bitcoin prices, the 3-month and 6-month correlations were -0.50 and -0.59.

em fx, bitcoin price, bitcoin price today, try bitcoin correlation, usdtry, usd to try, try rate

Among the emerging market FX discussed in this report, USD/TRY has the most significant 20-day and 6-month correlations with bitcoin prices.

South African Rand (USD/ZAR) vs Bitcoin (BTC/USD)Technical Analysis: Daily Chart (May to November 2019) (Chart 5)

em fx, bitcoin price, bitcoin price today, zar bitcoin correlation, usdzar, usd to zar, zar rate

Since the start of November, USD/ZAR has lost-0.8% while bitcoin prices have lost -4.4%. The current 5-day and 20-day correlations between USD/ZAR and bitcoin prices are -0.92 and 0.26, respectively. On longer-term horizons, the 3-month and 6-month correlations are -0.04 and -0.31, respectively. In our last update on update on USD/ZAR and bitcoin prices, the 3-month and 6-month correlations were 0.21 and -0.22.

em fx, bitcoin price, bitcoin price today, zar bitcoin correlation, usdzar, usd to zar, zar rate

Among the emerging market FX discussed in this report, USD/ZAR has the most significant 5-day correlation with bitcoin prices.

Why Does Crypto Typically Benefit When EM FX Suffers?

A quick recap: bitcoin and cryptocurrencies are not “safe haven currencies” per se, as they lack key features of being a currency in the first place, main of which is a ‘stable store of value.’ But if you’re not using bitcoin and other cryptocurrencies as ‘stores of value,’ then, given the electronic nature of the globalized economy in 2019, the cryptocurrency market, coins and tokens can all be used as intermediaries to move capital beyond of the reach of governmental agencies.

Why would a market participant want to move capital around without government interference? If capital controls are in place, then it may be impossible to render the production of goods or services at fair value, especially in an emerging market economy. It may not be due to domestic conditions alone, either fiscally (via elections) or monetarily (via central banking independence). Instead, it could be due to external factors, like economic fallout from an international trade dispute – say, the US-China trade war.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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