AUDJPY: (Still) best SPX macro correlation Wide Aussie - JGB yield spreads in the 2000’s leading up to ‘08 crisis made Aussie dollar / JP yen the go-to levered carry trade used to fuel the US housing CDO bubble (with subsequent bubble burst → mass unwind which strengthened jpy to 70 vs USD).
Post crisis era saw the AUDJPY carry trade out back on. 2016- BOJ implements YCC, pinning 10y JGB yields at ~0%, which made Aussie yields the moving variable- AUD became a gauge of macro risk sentiment as carry trades funded risk assets, including NKY & SPX.
In the wake of the global slowdown (starting pre COVID), with Australia facing the end of it’s 3 decades without recession, the RBA has since slashed Aussie cash rates to record lows and then moved to implement YCC itself, making RBA the second developed market central bank to do so after BOJ.
AUDJPY remains a favorite fx pair among japan margined retail traders, who are more bullish US equities vs domestic NKY. Japan retail is the “glue” between AUDJPY & SPX (eminis) & NKY (NKY mini futures- which now exceed standard NKY index futures in notional traded value)- when japan retail goes risk-on, AUDJPY & equities rise. When they unwind on margin calls, AUDJPY falls alongside index futures liquidation.
With other major FX pairs (namely USDJPY) as well as cross asset UST yields, gold, copper, oil, even VIX no longer having any consistent correlation to SPX, AUDJPY is the one macro asset indicator left with positive correlation.
And now that US rates have been cut from above → below Aussie rates with Fed Funds pinned at zero for the foreseeable decade+ and UST 2s approaching zero quickly, the RBA policy meetings are the “new” FOMC with respect to central bank short term SPX influence.
