Eos Energy stock falls after Fuzzy Panda issues short report
The Australian dollar is behaving less like a rates story and more like a proxy for global risk appetite. Correlation analysis shows strong ties to copper and the yuan, while rate spreads barely register. Here’s what that means for the week ahead.
- AUD/USD correlations with copper and yuan hit multi-month extremes
- Rate differentials show weak influence on price action
- Bullock signals more data needed before RBA moves
- Technicals tilt bullish with key resistance broken
Summary
The Australian dollar is trading more like a proxy for global risk appetite and China-linked markets than a rates story. Correlation analysis shows AUD/USD moving in lockstep with copper and the yuan while largely ignoring rate differentials, underscoring that macro sentiment and trade optimism are driving the narrative.
While Australia’s Q3 inflation report and the Fed decision may spark short-term volatility, their influence looks secondary to broader risk trends. Michele Bullock’s comments have tempered expectations for near-term RBA action, lifting the bar for a November cut and reinforcing that policy decisions hinge on incoming data.
Technically, AUD/USD has broken through key resistance, shifting the bias toward buying dips and bullish breakouts. Momentum indicators are turning supportive, suggesting the directional tide may be moving in favour of the bulls.
AUD a Risk-Oriented China Proxy
The Australian dollar has reverted to its traditional role as a barometer of risk appetite, with strong linkages to China, as demonstrated by the strength of the correlation coefficients in the chart below.
Source: TradingView
Against USD/CNH (red line) and COMEX copper futures (yellow line), AUD/USD has registered scores of -0.87 and 0.89 respectively, hitting extremes not seen in several months. The Aussie has also shown a reasonably strong inverse relationship with VIX futures (green line).
In contrast, its relationship with rate differentials between Australia and the United States has been far weaker, especially at the longer end of the curve. This suggests that while there may be an abrupt one-off price adjustment in response to Australia’s Q3 inflation report on Wednesday, its influence may be fleeting beyond the short term.
The Aussie’s once strongly positive relationship with pricing for Fed rate cuts out to September 2026 (grey line) has also flipped strongly negative, with AUD/USD rising as the amount of expected easing has fallen. While contrary to what you would normally expect, it hints that optimism around trade negotiations—which has undoubtedly contributed to the unwind in Fed pricing—has benefited the cyclically oriented AUD recently.
Putting it all together, the correlation analysis suggests that while Australia’s inflation report and the Fed interest rate decision may deliver short-term bursts of volatility this week, more broadly, the performance of Chinese-linked markets and overall risk appetite are likely to have a stronger influence on the Aussie’s performance.