US DOLLAR VS EQUITY
What is the connection between the strength of the U.S. dollar and the U.S. Equity Markets?
Trending Content - Sales and Trading Forum
| +9 | Full Time Recruitment | 2 | 1d |
| +4 | Book Recommendations? | 2 | 2d |
| +3 | Best major for s&t? | 3 | 5d |
| +3 | What is your firm's compliance policy for PAs? | 1 | 4h |
Career Resources
Oh really? Which currencies have a lower interest rate than the dollar?
I think you are specifically interested in USD but the appreciation of a currency against let's say the basket of currencies (be stronger) is positively correlated with its index increasing. When you say strong, you should specify strong against which currency. But for USD, things have been different especially recently. USD is bought against other currencies when fear is up in markets. So it's not really clear. But generally when you want to buy the stocks at a specific country, you have to buy its currency too, which appreciates its currency. For exporting countries, the same thing applies. Good export can mean good index growth.
USD represents safety for the most part, so when equities are falling, the dollar is often rallying. This doesn't always happen but in general this is what's been going on recently.
Another reason the dollar is relatively negatively correlated with equity markets is, as someone mentioned, interest rate differential. Let's use AUD as an example, since their rates are pretty high and US rates are essentially zero, a typical trade strategy is called "the carry trade" which essentially involves borrowing in low interest rate areas and lending in high interest rate areas (aka Long AUD/USD). The risk comes from significant deterioration of the AUD/USD rate. So when vol comes back into the market, you often see carry pairs like AUD/USD fall because of the unwinding of the carry trade due to increased exchange rate risk. So in general, currencies like AUD/USD are correlated strongly negative with vol and recently since a drop in the markets has caused vol to increase, AUD/USD has been generally negatively correlated with equity markets.
Hope this helps.
Voluptatibus cumque fuga deserunt. Est quia atque sequi est a aliquid qui. Repudiandae et et accusamus accusamus enim officiis nisi. Exercitationem explicabo aut nisi quod. Non maiores totam inventore corrupti dolorem debitis.
Nulla et animi enim nihil et expedita. Laudantium unde nihil accusantium occaecati occaecati. Nostrum odio saepe animi dolorem explicabo ullam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...