When Markets Decouple?

 

For the most part of 2012 the AUD/USD has had good relationships to Base Metals traded on the London Metals Exchange (LME). The LMEX is an index of 6 Base Metals traded on the LME (Copper, Lead, Zinc, Tin, Aluminum and Nickel). The chart shows both the LMEX vs AUD since beginning 2012 and it is obvious to see that there has been some great relationship happening and for the most part this relationship should be the norm.

To explain this simply the AUD/USD is a commodity currency at least that is what we are told for the most part – this typically should hold true.  Australia is a nation rich in resources and with the world craving for resource this has lead to one of the biggest super cycles in the resource sector. So much so it saved Australia from recession in 2007/08. Naturally, this will play out in the AUD currency markets. However, here comes the “but”, since June 2012 the AUDUSD has widened this spread between LME Base Metals.

aud/usd markets decouple

AUD/USD markets decouple

The question now needs to be asked which will give in.  Will it be the AUD or will it be a metals rally! China is the key factor in the physical metals prices so that is the million dollar question to be answered one day soon. Bottom line keep your eyes on the base metals prices and the Aussie battler.