Whether you’re an experienced trader or brand new to Forex, you should be aware of the strong positive correlation between Copper1 & AUD/USD. This historical intermarket relationship is predominantly due to the fact that the Aussie (AUD) is considered one of the ‘commodity currencies’ and consequently will trade roughly in-line with other commodity markets – Since Australia is a major exporter of Copper, it tends to be a good proxy for this. Often I find an intra-day overlay helps ease the transition for experienced traders (in these alternative markets) into the world of FX or simply help newer traders formulate a view based upon a market which they may already feel opinionated about.
Typically, most analysts cite this relationship over the long-term, however there has been a strong intraday relationship between the two of late. The chart below depicts AUD/USD vs. Copper1 futures since 17:00pm ET (yesterday) and as you can see the two have been moving in lockstep with one another (Correlation = 0.8456). Please keep in mind, this doesn’t guarantee if copper continues to rally over the coming sessions that AUD/USD must trade higher as well (or vice versa), but it does suggest this should be the relationship between the two.
Therefore, if you are looking to trade AUD/USD over the next few days or weeks, it could prove beneficial to see if you have a similar view on the direction of copper – Otherwise, it may be wise to wait on the sidelines for a better opportunity to emerge. With that said, the positive correlation between Copper and AUD/USD seemed to have weakened between October 23rd & November 9th were moving in opposite directions, however they have begun to move in synchronization once again since the end of last week. Two key levels in Copper to keep an eye on are $3.55 (100-day sma) as well as $3.58 (bottom of the daily Ichimoku Cloud) and should this prove resistive, it could end up being a headwind for the Aussie.
1Reference is for informational purposes only and is not offered to US clients.
Chart Source: Bloomberg, FOREX.com