RBC Capital sums up the return of this significant correlation in the following chart:
As can be seen, it appears the correlation slipped out of place from October 2008 until February 2009 - the peak of the financial crisis - and since then has increasingly been coming back into play.
Barcap’s David Woo, meanwhile, makes a similar observation, but this time charts oil’s performance versus EUR/USD specifically:
Interestingly he concludes (our emphasis):If the key drivers behind the spike in the EUR/USD-oil correlation in the middle of last year were aggressive interest rate cuts by the Fed and the strong consensus at the time about decoupling, what is driving up the correlation now? In our view, the context is different but the reasons are the same. In recent weeks, sentiment towards global growth has improved, and in particular, the acceleration of the Chinese economy has fuelled hopes that Asia and some parts of Latin American will recover before the US.
At the same time, investors are concerned about the lack of a credible exit strategy from QE and the potential long-term consequences of the massive buildup of US government debt and contingent liabilities. The fact that inflation breakevens on TIPS are widening and gold prices remain above $900 an ounce (Figure 4) despite the dramatic abatement in risk aversion is consistent with the hypothesis that investors’ short-term deflationary fears are slowly giving way to long-term inflationary worries.