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USD/CAD, USD/JPY, Oil Price, US Rates Analysis: Cross Asset Correlation

USD/CAD, USD/JPY, Oil Price, US Rates Analysis: Cross Asset Correlation

Justin McQueen, Analyst

USD/CAD, Oil Price, USD/JPY Analysis & News

Canadian Dollar Remains Skewed to the Downside as Oil Link Converges

In our previous note we highlighted that the positive relationship between oil prices and the Canadian Dollar had temporarily broken down, this came amid a correction lower in USD/CAD following the Federal Reserve’s QE announcement. Alongside this, the central bank had also addressed concerns over USD funding via swap lines. However, we are starting to see a convergence between the relationship of CAD and oil prices with the 1-week correlation at -0.27 from -0.45. Therefore, with oil prices remaining downbeat we maintain a bearish bias on Canadian Dollar, particularly against a more defensive currency such as the Japanese Yen after the Japanese fiscal year end.

USD/CAD BEARISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 34% -37% 5%
Weekly 27% -17% 12%
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Easing US Rates Call for Lower USD/JPY

It is also worth noting that the Japanese Yen has had an increasingly negative relationship with US 10yr yields. As such, with the latter continuing to ease in recent sessions we feel USD/JPY is relatively elevated at current levels and thus expect the Yen to strengthen in the near term. Of note, today may see somewhat of a choppy session as we head to the London fix (4pm), particularly after the mini-flash crash at the Tokyo fix overnight.

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Figure 1. Cross-Asset Correlation (1 Week, 1 Month & 3 Month Timeframe)

USD/CAD, USD/JPY, Oil Price, US Rates Analysis: Cross Asset CorrelationUSD/CAD, USD/JPY, Oil Price, US Rates Analysis: Cross Asset CorrelationUSD/CAD, USD/JPY, Oil Price, US Rates Analysis: Cross Asset Correlation

Source: Refinitiv, DailyFX. The Topix is used a proxy for the Nikkei 225.

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

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

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