How Are Intermarket Correlations Holding Up?

With all the quick moves in the commodity markets these days, I thought I’d give y’all a quick update on how forex intermarket correlations are doing. Take a look at these charts!

USD/CAD vs. Crude Oil

USD/CAD vs. Oil: 4-hour Chart

USD/CAD vs. Oil: 4-hour Chart

If you’ve done your homework during your Sophomore year in our School of Pipsology, then you’d remember that the Canadian dollar is positively correlated to crude oil because the nation’s energy sector contributes a huge chunk to overall economic growth. Because of that, USD/CAD usually falls when oil prices are climbing and it tends to rally when the commodity price is dropping.

From early February to mid-March, this correlation was pretty noticeable, as the rebound in crude oil spurred a steady decline for USD/CAD. However, the sharp oil price drop towards the end of last month didn’t inspire such a huge rally for the pair.

AUD/USD vs. Gold

AUD/USD vs. Gold: 4-hour Chart

AUD/USD vs. Gold: 4-hour Chart

As for the Australian dollar and gold, a positive correlation has also been observed mostly due to the Land Down Under’s massive gold production activity. AUD/USD and gold have been moving in tandem since the start of the year until mid-March, when prices started consolidating.

Around that time, market sentiment played a strong role in pushing gold prices around while reports of central banks stocking up on their gold reserves kept prices afloat. However, the Aussie seems to be taking better advantage of the pickup in risk appetite lately, as you can probably notice from the decline in gold last week accompanied by a rally climb for AUD/USD.

USD/CHF vs. Gold

USD/CHF vs. Gold: 4-hour Chart

USD/CHF vs. Gold: 4-hour Chart

The U.S. dollar has an inverse relationship with gold, as investors tend to favor the precious metal in times of economic uncertainty. Because of that the chart of USD/CHF and gold tend to look like mirror images of one another. However, as you can see from the 4-hour chart of USD/CHF and gold price action so far this year, it looks like the dollar is still selling off heavily while gold is treading sideways.

Think these forex correlations could keep holding up or are we about to see new patterns moving forward? Don’t be shy to share your thoughts on where these commodities or pairs might be headed!

  • Heya!

    Yes, USD/CAD and oil are indeed negatively correlated, but that’s because oil and CAD are positively correlated.

    If that doesn’t make sense, think of it this way: if USD/CAD rises, then that means that The U.S. dollar is stronger while the Canadian dollar is weaker. And as you can see on the chart above, as USD/CAD rises, oil also slides lower.

    To summarize, the Canadian dollar weakens while oil slides lower, hence they’re positively correlated. But if the Canadian dollar weakens, then USD/CAD rises, hence USD/CAD and oil are negatively correlated.

    I hope I was able to help.