High-frequency cross-asset drivers of foreign exchange: US equities remain the leading high-frequency FX driver as US-rate and oil linkages strengthen
Deutsche Bank finds that US equities continue to drive the broadest set of FX pairs, while rising US yields have nearly doubled their recent causal connections to currencies and oil has also gained influence. Commodity-linked and equity-sensitive pairs remain especially exposed to cross-asset moves.
Summary
Deutsche Bank finds that US equities continue to drive the broadest set of FX pairs, while rising US yields have nearly doubled their recent causal connections to currencies and oil has also gained influence. Commodity-linked and equity-sensitive pairs remain especially exposed to cross-asset moves.
- US equities influenced many FX pairs on about 90% of trading days over the past three months.
- US-rate-to-FX connectivity almost doubled versus two weeks earlier amid rising US yields.
- Oil became a significantly more important recent FX driver.
- AUD/USD, USD/ZAR and EUR/NOK were the most sensitive pairs to cross-asset dynamics.
- The report flags potentially cheap NZD/USD implied volatility relative to its FX Blueprint fair value in a US-equity-led risk-off scenario.
Report Interpretation
Overview
This FX Blog maps which equity, rate, commodity and volatility markets have been driving currency moves at five-minute frequency. Deutsche Bank concludes that US equities remain the dominant broad driver, while US rates and oil have become more important over the latest fortnight.
Core views
Deutsche Bank’s latest causality tests show a marked rise in the influence of US rates on FX as US yields rise: the number of rate-to-FX connections almost doubled from two weeks earlier. Oil also became a more important driver, with connectivity rising significantly. Despite these shifts, US equities remain the dominant source of high-frequency FX moves. The report adds that US equities’ outperformance against other developed markets during the month could contribute to month-end dollar weakness through portfolio-rebalancing flows. Across individual pairs, AUD/USD, USD/ZAR and EUR/NOK remain the most sensitive to cross-asset dynamics, with commodity-linked influences gaining prominence over the past fortnight. Among major pairs, US equities, US rates and oil are the leading drivers of USD/JPY, EUR/USD, NZD/USD, USD/MXN, USD/SGD and USD/CNH. US equities are the primary influence on USD/CHF, USD/TRY and XBT/USD, while GBP/USD and USD/CAD reflect a combination of US equity and US-rate developments. The three-month history reinforces the equity result: US equities influenced many currency pairs on around 90% of trading days. USD/CHF, USD/JPY, USD/CAD, AUD/USD and NZD/USD were especially sensitive to US-equity moves. Deutsche Bank therefore argues that a US-equity-led risk-off episode would likely raise NZD/USD volatility; its FX Blueprint indicates that implied volatility in NZD/USD screens as cheap relative to fair value. Correlation evidence points to a widening role for emerging-market equity conditions. GBP/USD, AUD/USD, NZD/USD, USD/SGD, USD/MXN and USD/ZAR showed a notable increase in correlation with EM equities, rising by an average of 70%. US rates maintained strong correlations with EUR/USD, USD/JPY, USD/CHF, EUR/CHF, USD/CNH and XAU/USD. Commodity relationships remain important: oil is highly correlated with EUR/NOK, while copper is highly correlated with USD/CAD. VIX is strongly correlated with EUR/SEK, AUD/JPY and XBT/USD, highlighting the continuing relevance of broader risk sentiment. Longer-run driver data since April 2021 show notable pair-specific patterns. US equities have driven USD/CHF on 90% of days, while regional equities have been especially influential for AUD/JPY at 96% and EUR/PLN at 91%. Commodity effects are particularly strong for EUR/NOK, which has been driven by oil on 50% of days, and for EUR/SEK and EUR/PLN, which the report identifies as the pairs most driven by copper over the past three months. EUR/SEK and USD/CNH are identified as the most US-rate-driven pairs over the same three-month period; USD/CHF and USD/CNH are the most US-equity-driven.
Analysis framework
The report uses five-minute market data to test whether moves in other asset classes statistically precede and help predict FX moves. It ranks assets by the number of currencies they drive, measures each asset’s recent importance for each pair, and supplements causality results with five-day average correlations calculated from log-price changes. The analysis compares recent four-week conditions with historical patterns over three months and since April 2021.
Methodology notes
Granger causality tests
The report uses Granger causality tests at five-minute frequency to identify whether changes in equities, rates, commodities or volatility measures statistically precede and help predict moves in individual FX pairs.
High-frequency cross-asset correlation analysis
The report computes daily correlations from five-minute log-price changes and averages them over five days to identify contemporaneous links between FX pairs and other markets.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- NZD/USDHighly sensitive to US-equity moves; a US-equity-led risk-off episode would likely increase volatility.
- Strengths
- Its implied volatility screens as cheap relative to FX Blueprint fair value.
- Weaknesses
- High sensitivity to risk-off equity moves.
- Comparison
- US equities, US rates and oil are its dominant recent cross-asset drivers.
- Risks
- A US-equity-led risk-off episode could lift NZD/USD volatility.
- AUD/USDOne of the FX pairs most sensitive to cross-asset dynamics.
- Weaknesses
- Its correlations with EM equities rose notably.
- Comparison
- Recent drivers include US equities, US rates and oil.
- EUR/NOKA commodity-linked pair with strong oil linkage.
- Weaknesses
- Sensitive to oil-market developments.
- Comparison
- Oil is highly correlated with EUR/NOK and drove it on 50% of days since April 2021.
- USD/CHFEspecially sensitive to US-equity moves.
- Comparison
- US equities drove USD/CHF on 90% of days since April 2021; US rates also show strong correlation.
Key data
- US equity influence on FXAround 90% of trading days over the past three monthsUS equities remained the dominant force across many FX pairs.
- US-rate-to-FX connectivityAlmost doubledCompared with two weeks earlier as US yields rose.
- EM-equity correlationsAverage increase of 70%For GBP/USD, AUD/USD, NZD/USD, USD/SGD, USD/MXN and USD/ZAR.
- USD/CHF equity-driver frequency90% of daysUS equities drove USD/CHF on this share of days since 1 April 2021.
- AUD/JPY regional-equity-driver frequency96% of daysRegional equities were the most important longer-run driver in the reported table.
- EUR/NOK oil-driver frequency50% of daysOil was a particularly important longer-run driver for EUR/NOK.
Impact & implications
The report’s cross-asset map suggests that short-term FX behavior remains highly sensitive to global risk appetite, particularly US equity moves, but rate and commodity shocks have become more relevant. It highlights NZD/USD as especially vulnerable to a US-equity-led risk-off event and identifies pair-specific rate, oil, copper and volatility linkages that can shape near-term FX moves.
What to watch
- Whether rising US yields sustain the recent increase in US-rate-to-FX connectivity.
- Whether oil’s growing influence on FX persists, especially for commodity-linked pairs.
- US equity performance and any risk-off episode, given broad equity sensitivity across FX and the volatility implications for NZD/USD.
- Changes in EM-equity correlations for GBP/USD, AUD/USD, NZD/USD, USD/SGD, USD/MXN and USD/ZAR.