Global markets are a complex web of free money, zero interest rates and expectations about growth and the path of the Federal Reserves monetary policy at the moment. Trying to tell when, indeed if, there might be a reversal is difficult.
But a chart from Oliver Gordon, global investment director at Rivkin Securities, of the correlation between the AUDJPY (Australian Dollar Japanese Yen) exchange rate and the ASX 200 suggests an interesting relationship which highlights how these global trends feed back into the local sharemarket.
Gordon says this relationship works because the AUDJPY is a good proxy for the risk-on, risk-off meme that often drives markets and especially stock markets and the Aussie dollar. While it’s not a perfect correlation, Gordon believes that the AUDJPY leads the ASX moves.
He’s not saying that AUDJPY is about to crash – it actually rallied to 97.08 on Friday – but he believes that if AUDJPY falls below 95.24 that this will be a signal that the market is turning.
Here’s a chart of the correlation.