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Analysts at  Nomura  summarise what is correlating in FX.

Key Quotes:

“While global risk aversion has moderated over the past couple of weeks, risk-off correlations continue to hold in EUR crosses as the Italian budget conundrum is yet to be resolved.”

“The yen has steadily weakened over the past month, bringing the EURJPY and Nikkei correlation back. We argue that in addition to the external backdrop, the worsening trade balance and FX flows may contribute to JPY depreciation.”

“Elsewhere, because of the high correlation between EUR credit and BTP spreads, the correlations between FX and IG credit are picking up across the board, notably, AUD, NZD and EUR.”

“In EM, correlations between spot FX and their implied vols and country-specific rate spreads continue to lead the way. But apart from  that  there’s little to say but the obvious in the top 10 rankings, so we look to the biggest moves in correlations to see if there are any early trends. It’s the increase in EURCZK’s correlation with rate differentials that catches our attention as the Czech National Bank (CNB) continues policy normalisation.”

We attach equal likelihood of the next CNB hike to the November and February meetings, yet the risks look skewed to sooner rather than later owing to higher-than-projected core inflation and intensifying wage pressures.”