What is correlating in FX? - Nomura

Analysts at Nomura have been identifying the top cross-market correlations.

Key Quotes:

"Risk-off correlations remain: As tends to be the case with risk-off moves, when markets rise or fall in near straight lines they come up as “correlated” despite weak ties that bind them together. The strong correlation between Germany’s DAX and the Malaysian Ringgit are a prime example. But then again our minds have been opened this morning to the volatile but also strong correlation between the UK FTSE100 and the Aussie dollar, at least the commodities connection makes sense there. But overall as we saw in our previous update (link) there are still significant negative correlations between risk-on FX pairs and their respective ATM vols. 

For us what stands out is the recent pick-up in US credit to FX such as NZD and how the rally in US IG credit has seen high beta FX lag behind. The underperformance of gold this year to date leads it to be highly correlated with EUR, CNH and NOK. Not only does it capture the broad USD move since April, but also the dips in EURUSD owing to Italy and the sideways price action we’ve seen since."