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PrimeXBT: The Current Currency, Commodity, and Crypto Correlation Explained

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2020 has been a year unlike any other. The first days were extraordinarily intense, starting off with uncertainty due to the COVID outbreak and increasing political tensions globally.

The first quarter began with equities setting new all-time highs, but once the world caught wind of the coming lockdown conditions and the potential impact the pandemic could have on the economy long term, a severe selloff set asset prices back a year or more in a flash.

Markets have since made a miraculous, V-shaped recovery, and traders have been able to turn all of the volatility in between into a once in a lifetime opportunity for profits. Along the way, however, various assets have become tightly correlated that otherwise were anticorrelated or completely uncorrelated. For example, analysts note that Bitcoin and the S&P500 have been more correlated than any other point in the cryptocurrency’s history.

But what other markets and assets are showing a tight correlation, and why? Exclusive market analysis from PrimeXBT reveals some incredibly interesting asset correlations and the reasons behind each unusual connection between them.

Striking Gold: Forex Currencies AUD And CAD Surge Alongside The Safe Haven Asset

One noticeable correlation since the pandemic first struck is the fact that gold (XAU), the Australia Dollar (AUD), and the Canadian Dollar (CAD) have all traded almost lock and step.

Gold – the most valuable precious metal by market cap – is a unique asset in the financial space due to its position as a commodity or a currency. XAUUSD is often listed along with batches of other forex currencies, yet also traded as a commodity equally as often.

Gold trading in 2020 set a new all-time high above $2,000, and alongside that rise, AUD and CAD have also been growing at almost the same rate and exhibiting the same price action – but why?

In this example, there are several reasons behind the correlation. Both Canada and Australian investors have long looked to gold as a safe haven asset during times of turmoil – and there’s never been more turmoil than now. Canada and Australia are also home to two of the most renowned gold mints globally: the Royal Canadia Mint and The Perth Mint. Canada still issues its Maple Leaf currency as a gold coin alternative.

The Canadian and Australian economy showing strength relative to other countries through their currency strength also could suggest that whatever wealth is liquid is flowing into gold to protect from whatever is to come economically.

Currencies Showing Strength, Or The Global Reserve Currency Showing Weakness?

Another fact that the trio of assets have in common is that they trade directly opposed to the dollar on their most prominent trading pairs. This fact also highlights the idea that the dollar’s recent weakness is behind the strength of many of the assets – such as gold, AUD, and CAD – it trades against.

Adding in the strength of USD as measured by the DXY Dollar Currency Index, a direct inverse correlation, or anti-correlation, is visible against gold, CAD, and AUD.

What this chart represents is a massive flight to the dollar during the Black Thursday market collapse. No asset was safe that day as all that mattered at the time was fleeing to the safe haven of the global reserve currency. That trend reversed immediately, however, and the dollar has been in decline since.

The dollar itself shows just how intertwined markets can be. As the global reserve currency, it is the most dominant currency in the world and the base currency at which all exchange rates are set by. USD represents one-half of nearly all trading pairs that exist, and due to this, its strength or weakness can have a dramatic impact on all markets.

The Dollar’s Decline Amplifies Bitcoin’s Recent Rise

However, due to the pandemic and widespread panic that remains, coupled with the upcoming United States election and a global economy on the brink of recession, the dollar’s effects are amplified.

Any asset trading directly opposed to the dollar has this year since Black Thursday benefited from the almighty dollar’s sudden decline. Another example of an asset directly opposed to the dollar that has done well in 2020 is Bitcoin. Bitcoin has beaten out gold, stock indices, and more as the best mainstream investment of 2020 so far, and it has even maintained its strength better than these other asset classes. However, even Bitcoin has started to pull back at the dollar’s recent recovery.

What Will The Final Stretch Of 2020 Bring To PrimeXBT Traders?

Markets are at a pivotal moment, where a decision must be made. And it very well could hinge on another decision hanging over the market. The upcoming United States election is a risk of uncertainty that will directly impact the nation’s currency – the greenback – and shake up major US stock indices. US stock indices such as the S&P 500, NDX, and Dow Jones also shockingly show a strong inverse correlation since Black Thursday, similarly to other examples we’ve shown.

The final stretch leading up to a US election has historically been a rocky time in markets. Various volatility indexes reflect this expectation that explosive price action will strike yet again during this particularly pivotal election.

This means that it now is the time for traders to prepare, manage against any potential risk, and get into position for whatever opportunity lies ahead. For those unsure how to get into position yourself, consider following another experienced strategy manager through the Covesting platform, or utilize the various technical analysis tools provided directly within the PrimeXBT dashboard. PrimeXBT is an award-winning Bitcoin-based margin platform offering index trading, commodities, crypto, forex currencies, and much more.


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