Thursday, October 25, 2012

Dollar Correlation with Romney Since Debates

Over the last few years, the dollar has had a strong negative correlation to equity and commodity prices.  When the dollar has weakened, equity prices have generally risen and when the dollar has strengthened equity prices have usually fallen.

For most of that period, risk on/risk off mentality plus a nice dose of QE 1,2 and 3 have been the major forces affecting the dollar.  In recent weeks there has been another factor at play though which has been interesting to watch.  Ever since Romney's strong performance at the first presidential debate, the market has started to price in the possibility that he could actually win.  This would have big implications for the Federal Reserve, QE and the dollar, because most expect Romney to push for an end to QE.  As such, the dollar has started to trade with some correlation to the Romney intrade contract.  In the last few weeks, when Romney's odds of winning increase, the dollar (measured by DXY) increases as well.

Importantly, most people seem to think that a Romney presidency would be a positive for equity markets; however, a Romney presidency would likely mean a stronger dollar, which could mean lower equity prices if the correlation holds.

No comments:

Post a Comment

For compliance reasons, I don't post comments to the site, but I do like hearing from readers and am happy to answer any questions. Feel free to use the comment box to get in touch. Please leave an email address in your comment so that I can write back, or email me directly at