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Should a Country's Currency And Stock Benchmark Move in Tandem

Should a Country's Currency And Stock Benchmark Move in Tandem

2015-04-16 02:33:00
John Kicklighter, Chief Strategist
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Talking Points:

• Recently, the Dollar and S&P 500 have risen in concert

• An specific influx of capital into a country would boost a currency and likely lift its capital markets

• Yet, absent a global tide of capital to a specific region, currency and index can - and do - diverge

Want to develop a more in-depth knowledge on the market and strategies? Check out the DailyFX Trading Guides we have produced on a range of topics.

Over the past nine months, both the US Dollar and US equities have advanced. Both trends are well established, but is this a natural state of being for a country's currency and capital markets to rise and fall together? Such a connection can be established if there is a global demand for a country's assets which would bolster the value of the local market and necessitate a conversion into the currency. However, that doesn't occur as often as we may think. Appetite for Japanese and Eurozone stocks for example has developed alongside tremendous declines in their respective currencies. Shares have surged on stimulus efforts while the same has led to market FX depreciation. Correlations can wax and wane under different circumstances, and we look at some of those key determinants in today's Strategy Video.

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