Recently, we have seen big moves in commodities; but the fallout as far as the commodity currencies are concerned has been very limited. Some would argue this is further evidence that markets are starting to decouple and correlations are breaking down.
However, our research shows that talk of the end of the ‘risk on – risk off’ phenomenon is premature. Although correlations have fallen since the end of last year, they remain high relative to historical levels. We make sense of the extent to which different assets are sensitive to risk on – risk off. Our main findings are:
* Oil has recently decoupled from risk on – risk off
* AUD has overtaken the CAD as the most risk-on currency, while the CHF is the most risk off
* GBP is driven by its fundamentals and is largely independent of risk on – risk off
* Natural gas has remained more or less immune from the whole phenomenon
* During some periods silver and gold have appeared risk on, whilst during others they have been more risk off
HSBC Global Research