The S&P 500 continues to make fresh highs at 2000.95 but other signs in the market aren’t nearly as sanguine.
Treasury yields remain in the doldrums but the clearest sign might be strains in the carry trade. NZD/USD hit the lowest since February today and the pair is down 5.6% from the July high.
Since 2009, the monthly correlation between the S&P 500 and NZD/USD is 0.664 and remained steady for most of this year but in the past six weeks that correlation has collapsed. The crux of the story is a shift to a more neutral stance and the RBNZ and lower milk prices but it’s almost impossible to separate the New Zealand dollar from the risk trade.
So far it’s a modest correction of the rally since mid-2013. The 50% retracement is at 0.8278 and the 61.8% is at 0.8147. If you expect stocks to continue rising, those levels have to hold.