A Correlation that Won't Hold Up


GETTING GOING - This correlation we're seeing where the US Dollar rallies and stocks also rally is a real head scratcher for me. The market has been associating risk off with being bearish US Dollar in recent weeks and as we all know, the correlation is traditionally the other way around. While it's true a lot of the risk off flow is because of what's going on in the United States, traditionally, this hasn't really mattered and even if there are negative developments relating to the US economy and US risk, the US Dollar has rallied on the broader macro implications and the desire to move into the most liquid currency out there in the safest economy. So what's going on?

cartoon sep 12

A DIFFERENT STORY - The biggest thing going on in 2017 that I believe is throwing everything off is the fact that the US administration has been advocating a weak US Dollar policy. We haven't seen this type of policy for some time and it has been giving many out there a big headache. But my belief is that as much as the administration may want to influence the US Dollar lower, at a certain point, it will become an impossible task. While risk off has translated into US Dollar off in recent weeks, the correlation isn't likely to hold up. The big reason here is that as much as we've seen some risk off, when you look at US equities, we really haven't seen any risk off at all. Stocks are still at record highs. But the moment you see equities take another turn for the worse will be the moment the market gets spooked and once again starts racing back into the Buck. So maybe for now that correlation is doing some crazy things, but don't expect it to last much longer.

Look for the US Dollar to start gaining in risk off again.


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