Correlation And Causation

Bank Shares & Aussie Dollar

In the previous two Australian trading sessions, Australian Bank shares and the Australian Dollar have traded with a very close correlation as shown in the charts of Commonwealth Bank (ASX:CBA) and AUDUSD.

This correlation has pretty much continued today (Friday, 5th May) too.

Interesting – Sort of
This obvious and interesting (to me) correlation seems to happen a couple of times a year.

Why does this correlation happen?
In my view, when this correlation occurs, it is an international institution or institutions selling Australian Assets (Bank shares) which at times also requires an equivalent sale of Australian currency.

Why the selling? What could be the cause (causation)?
1. Perhaps the international fund/s or institutions have viewed the recent announcements by the Australian Government to put $6 Billion into building Western Sydney Airport and the $30 Billion recurrent spending pledge by 2027 on Australia’s Education system (so called Gonski 2.0) as reasons to sell our currency and the corresponding assets.
2. Maybe there was something in the recent RBA statement that accompanied the rate decision that international institutions did not like.
3. Perhaps it is just a coincidence that Australian bank shares have moved in unison with the Australian dollar the past few days. Perhaps there is nothing to see here.
4. Possibly whoever was selling thinks they see a better opportunity elsewhere.
5. Potentially it has something to do with our banks exposure to residential property prices.

It may be nothing but history tells me otherwise atleast in the near term.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

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