A correction in equity markets is likely to have a disproportionate impact on the USD – NBF

After rallying in the aftermath of the US debt deal in May, the greenback’s strength has proven elusive. Economists at the National Bank of Canada analyze USD outlook. 

Unusually strong correlation with stock market

The recent bout of weakness has coincided with a risk-on sentiment in financial markets, led by a broad-based rally in global equity markets. 

The 30-day negative correlation between daily changes in the S&P 500 and the USD broad Dollar index is nearly double its average since 2006. Under these circumstances, we believe that a correction in equity markets is likely to have a disproportionate impact on the USD.