Intermarket Analysis: How Asset Classes Talk to Each Other

Currency markets do not exist in isolation. Bond yields, equity indices, commodities, and FX are interconnected. Understanding these relationships provides a macro framework that most retail traders completely ignore.

Intermarket analysis studies the relationships between different asset classes: bonds, equities, commodities, and currencies. These relationships are not fixed — they shift with the macro cycle — but they are consistent enough within a cycle to provide significant directional information for FX traders.

The core relationships

The primary intermarket relationships relevant to FX: Bond yields and currency strength are positively correlated for the same country — rising US yields support the dollar. Equities and risk-sensitive currencies (AUD, NZD, CAD) tend to move together — when equity markets rise in risk-on environments, commodity currencies outperform. Gold and the dollar have an inverse relationship — dollar weakness supports gold.

Risk-on vs risk-off

The most important intermarket framework for FX is the risk-on/risk-off dynamic. In risk-on environments (equities rising, volatility falling, credit spreads compressing), investors seek yield and growth — they buy equities, sell safe havens, and favour commodity currencies. In risk-off environments (equities falling, VIX rising), capital flows to safe havens: USD, JPY, CHF, and gold.

Using intermarket data practically

A practical application: before entering a long AUDUSD trade, check whether US equity futures are rising, whether copper (a leading commodity indicator) is strong, and whether the VIX is falling. If all three are aligned, the intermarket environment supports the AUDUSD long thesis. If equity futures are declining and VIX is rising, the macro environment argues against the trade regardless of the technical setup.