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Will Close Asset Correlations Hold In The Pullback?

FYI | May 18 2009

FNArena editor Rudi Filapek-Vandyck has already pointed out that various assets, currencies and indices have been trading closely in line with each other since the end of February; a sign that the major driver since then has been investor sentiment and not so much market fundamentals.

Now Charlie Chartchecker has done some of his own research into the matter. His conclusion is pretty much the same: the Australian dollar (against the USD) has traded almost as a twin brother to the price of crude oil over the weeks past. Similarly, noted Charlie, the triangular correlation between Australian equities, US equities and crude oil has been exceptionally high since early March.

This, obviously, raises the question whether these extremely close market relationships will remain in place now that the surge upwards in sentiment driven asset prices has -at least temporarily- come to a halt?

Will the Aussie dollar pull back in line with the oil price and vice versa? And what about Australian equities? Will oil continue following the lead from US equities?

Charlie chartchecker will be closely watching further market movements.

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