3 May 2016
What’s Correlating in FX – Nomura
Research Team at Nomura, lists down the important G10 FX correlations as they argue that by identifying significant changes in these correlations can provide an early indication of “regime changes.
Key Quotes
• “The largest correlations are dominated by equities. For example, USD/JPY has a 72% correlation with the Nikkei and EUR/CAD has a -77% correlation with the FTSE 100 (i.e., EUR falls against CAD when UK equities rally). In general, the dollar appears to be positively correlated with risk, and so the euro is the funding currency that is negatively correlated with risk. This shows in euro crosses correlating with risk.
• Outside of risk, rate differentials are correlated to some currency pairs: EUR/GBP, EUR/NZD and EUR/CAD stand out. Again, it seems the euro is the base currency through which fundamentals are expressing themselves.
• As for changes in correlations, the biggest increases to more negative or more positive appear to involve oil. It seems that a whole swathe of currency pairs from EUR/NOK to EUR/USD to USD/CHF have become correlated to oil prices.”
Key Quotes
• “The largest correlations are dominated by equities. For example, USD/JPY has a 72% correlation with the Nikkei and EUR/CAD has a -77% correlation with the FTSE 100 (i.e., EUR falls against CAD when UK equities rally). In general, the dollar appears to be positively correlated with risk, and so the euro is the funding currency that is negatively correlated with risk. This shows in euro crosses correlating with risk.
• Outside of risk, rate differentials are correlated to some currency pairs: EUR/GBP, EUR/NZD and EUR/CAD stand out. Again, it seems the euro is the base currency through which fundamentals are expressing themselves.
• As for changes in correlations, the biggest increases to more negative or more positive appear to involve oil. It seems that a whole swathe of currency pairs from EUR/NOK to EUR/USD to USD/CHF have become correlated to oil prices.”