What is correlating in FX? – Nomura

Nomura global FX Strategy team takes note of the latest correlations between currencies, currencies and metals and volatility indices.

Key points

The correlation between precious metals and USD crossed with various currencies (NZD, EUR, AUD, JPY, CHF and SEK) continues to feature prominently among top correlations. Otherwise, while top positive correlations have eased on average relative to last week, the list remains dominated by nominal swap rate differentials (2y and 5y) with various USD crosses (with NZD, EUR, SEK, NOK, and JPY).

On the negative correlations side, a notable new entrant to the list includes the correlation between the performance in EURUSD and changes to its 3M ATM implied volatility, having risen in magnitude to around -71% (a level not seen since December 2015) since topping off at 0% around November 2016).  

A notable trend reflected in the list of top two-week changes in correlations is the increasing correlation between cVIX (a measure of implied volatility of currency markets) and the USD (crossed with various currencies such as EUR CHF, JPY, SEK, NOK, and GBP).