AUD: Correlations Strongest With AU-US Rate Differentials & Equities Past Month
May-20 00:16
The table below presents AUD/USD correlations with key macro drivers, using the sample period of the past month. This is applied in level terms. At this stage, correlations are strongest with AU-US rate differentials (expressed as the expected 3 month differential 1yr ahead) and global equities. Correlations with commodities, whether it be global Bloomberg indices or iron ore, sit close to flat, down from highs seen in the first part of the year.
- This comes ahead of the RBA meeting later, where any major surprises - to the extent they shift market pricing, could influence AUD/USD, assuming recent correlations hold.
- The balance of risks arguably lies more with a hawkish outcome, given recent employment/wage outcomes (i.e. a 25bps cut but cuation around further moves). Market pricing is also for two more cuts this year from the RBA.
- The AU-US 3mth spread (in 1yrs time) has been in a broad range of around -50bps to flat since the start of the year. We currently sits around -16bps.
Table 1: AUD/USD Correlations With Key Macro Drivers
| AUD/USD | |
| Bloomberg Base Metals | -0.015 |
| Bloomberg Commodities | -0.075 |
| Iron Ore | 0.136 |
| Global Equities | 0.467 |
| AU-US 3mth Spread | 0.529 |
Source: MNI - Market News/Bloomberg
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| 25-Apr | 0745 | FR | Manufacturing Sentiment |
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| 29-Apr | 0800 | ES | HICP (p) / GDP |
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| 30-Apr | 0900 | IT | GDP (p) |
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JGBS: Twist-Steepener Holds Going Into W/E, BoJ Gov Ueda Reiterates Caution
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JGB futures are stronger, +18 compared to settlement levels, sitting near the middle of the range after a choppy session.
- “Governor Kazuo Ueda reiterates his stance that the central bank will carefully monitor if its economic outlook will be realized, accounting for the effects of US tariff measures, without preconception. The BoJ will raise the benchmark rate if the outlook is realized, Ueda says in response to questions in parliament.” (per BBG)
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