AUD: Correlations With Global Risk Sentiment Variables Rise
A$ correlations have moved lower with yield differentials over the past week. Correlations with risk metrics have risen but remain below historical norms. The table below presents AUD/USD correlations with traditional macro drivers for the past week and month (in level terms). Note correlations with yield differentials are based off government bond yield spreads.
- Yield differentials have been volatile in recent weeks, but without a strong trend. The two year AU-US 2yr spread is last around -114bps, up from early March lows near -163bps, but we did get as high as -72bps in recent weeks. The 10yr spread is closer to recent lows though, around -28bps.
- Correlations for the past week are back to negative territory, but remain positive for the past month in terms of yield differentials.
- With global commodities, correlations have risen, particularly in terms of base metals, but we remain below historical averages. The correlation with iron ore is back in negative territory.
- Correlations with global equities/risk gauges have also normalized somewhat, but remain below historical averages, much like global commodity indices.
Table 1: AUD/USD Correlations
| 1wk | 1mth | |
| AU-US 2yr Spread | -0.27 | 0.23 |
| AU-US 5yr Spread | -0.27 | 0.46 |
| AU-US 10yr Spread | -0.42 | 0.47 |
| Global Commodities | 0.27 | 0.55 |
| Global Base Metals | 0.51 | 0.72 |
| Iron ore | -0.71 | -0.14 |
| Global equities | 0.48 | 0.55 |
| US VIX index | -0.31 | -0.24 |
Source: MNI - Market News/Bloomberg
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USDCAD TECHS: Building Base for Recovery
- RES 4: 1.3751 High Nov 4
- RES 3: 1.3705 Dec 16 and the bull trigger
- RES 2: 1.3665 High Jan 6
- RES 1: 1.3537 High Feb 17
- PRICE: 1.3500 @ 16:25 GMT Feb 17
- SUP 1: 1.3275/3262 Low Feb 14 / 2
- SUP 2: 1.3226 Low Nov 15 and bear trigger
- SUP 3: 1.3205 61.8% retracement of the Aug 11 - Oct 13 rally
- SUP 4: 1.3131 0.764 proj of the Oct 13 - Nov 15 - Dec 16 price swing
USDCAD traded higher again Friday, hitting the week’s best levels at 1.3537. This defies the view that the recent bounce was corrective, as the pair builds a base for further gains. The bull trigger is still someway off at 1.3705, but a weekly close above the 1.3500 would prove constructive. A break of 1.3262, Feb 2 low, would strengthen bearish conditions and open 1.3226, the Nov 15 low and the bear trigger.
US TSY FUTURES: BLOCK, Late 10Y Sale
- -8,000 TYH3 112-00.5, sell through 112-01.5 post-time bid at 1527:48ET, 112-00.5 last (+4)
AUDUSD TECHS: Pullback Nears Support
- RES 4: 0.7245 2.00 proj of the Nov 21 - Dec 13 - Dec 20 price swing
- RES 3: 0.7202 High Jun 9
- RES 2: 0.7172 1.764 proj of the Nov 21 - Dec 13 - Dec 20 price swing
- RES 1: 0.7082/0.7158 High Feb 3 / 2 and the bull trigger
- PRICE: 0.6855 @ 16:24 GMT Feb 17
- SUP 1: 0.6812 Low Feb 16
- SUP 2: 0.6781 38.2% retracement of the Oct 13 - Feb 2 uptrend
- SUP 3: 0.6755 Trendline support drawn from the Oct 13 low
- SUP 4: 0.6688 Low Jan 3
AUDUSD printed a lower low early Friday, putting prices through first support at 0.6856 to expose 0.6781. The broader uptrend remains intact for now, and the recent move lower highlights a correction that is allowing a recent overbought trend condition to unwind. Key resistance and the bull trigger have been defined at 0.7158, the Feb 2 high. A break would resume the uptrend.
