USD/ZAR vs DJIA correlation

[brendonvdh]

Hi,
If you look at this chart comparing the USD/ZAR and the DJIA
There is an obvious inverse/negative correlation..

Can anyone shed some fundamental light on this please?

[akeakamai]

Originally Posted by brendonvdh

Hi,
If you look at this chart comparing the USD/ZAR and the DJIA
There is an obvious inverse/negative correlation..

Can anyone shed some fundamental light on this please?

I believe this is because the USD/ZAR carries a large yield difference (favoured for USD/ZAR Shorts) and as anything which carries high yields (=high risk) is affected by perceived risks in the market place, or credit crunches in recent times. When people get scared they sell their stocks (DJIA goes down), and the USD/ZAR shorts have to cover, and so simultaneously USD/ZAR goes up.

There is no causal relationship, they are merely reacting to the same conditions because they are held for the same reasons (earn high yields). Hope this helps