Correlations Between Currencies And Financial Assets

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Best Forex Brokers
– April 10, 2011Posted in: Forex Education

The era of barter has been over for centuries, now all transactions are in cash. Sentence quite obvious but hides a big truth to apply to the foreign exchange market. If all exchanges are done through the exchange of currencies, then virtually every exchange will affect the relationship between currencies. Obviously the larger the transaction the greater the effect.


So it’s not just look at the chart of EUR / USD for example, and judge whether the single currency goes up or down compared to the U.S. currency. There are forces outside the market, very strong, that push a currency up or down.


Today we introduce the concept of correlation and see what they are mainly related to the major currencies and how external changes can affect the value of the currency.

The correlation is a measure of the relationship between two variables. The correlation can be positive and in this case the variables move in the same direction and negative if they move in the opposite direction. The rate of correlation indicates that the two variables are linked and influence one another.


In this article we will not go into the specifics of data, but we just want to illustrate the main correlations between currencies and other financial assets or economic events.

  • The U.S. dollar is negatively correlated with Gold. The two instruments are seen as substitutes for goods and gold is regarded as a safe haven in times of uncertainty. So usually when the price of gold rises, the dollar should fall.
  • The euro is positively correlated with Gold. The motivation lies not in the fact that the euro is taking on the role of anti-dollar. So if the dollar falls and gold rises, the euro tends to rise.
  • The Pound English has a strong positive correlation with oil. Energy production is a very important component of GDP English and about 25% of the FTSE 100 is composed of oil companies and energy. So when the price of crude salt also should benefit the Pound.
  • The Japanese yen has on the contrary a negative correlation with oil. As an exporting country transport prices skyrocket when the price of oil goes up damaging the economy and the Japanese Yen.
  • The Swiss Franc has a special relationship, is directly proportional to wars and periods of political uncertainty. In fact, Switzerland has always played a neutral role during the war and still they are perceived historical reasons and investors consider the Swiss Franc coin refuge in times of uncertainty.
  • The Canadian Dollar and Australian are positively correlated with commodities. Since both major producers and exporters of raw materials, at a time when the commodities bull trend starts, it’s usually a good time to go long on these two coins.

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