Currency correlations with stock market

The correlation between the currency value and stock market goes back to the principle of supply and demand. When an equity market is on the rise, assets in that country grow in value. This draws investor interest from around the world. As investments flow into a country, demand for the local currency rises increasing its value.

Similarly, when the local equity market underperforms, confidence lowers in the economy. Investors leave and local currency depreciates.

Let us take an example. In the chart below you can see how the Australian Dollar, British Pound, and Dow Jones Industrial Average have tracked each other closely in 2009. It shows that the correlation between US stocks and currencies represents one continuous long-term trend, and based on this chart, you would be making an accurate assessment.

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