What's correlating n the FX space - Nomura

Analysts at Nomura noted what is currently correlating in the FX space.

Key Quotes:

"Top positive correlations have strengthened on average, with USD/JPY and rates still leading the top 10 list (vs. 5yr and 2yr nominal swap rate differential and the 10yr UST rate). 

A new addition to the list is the correlation between USD/CAD and nominal swap rates differentials (5yr and 10yr), consistent with the recent pick-up in expectations for a Fed hike in March on the back of hawkish comments by key FOMC participants."

"While monetary policy between the US and Canada is indeed expected to diverge this year, our view is that it is unlikely to continue to exert significant upside pressure on USD/CAD, given the extent to which the market has already priced in Fed hikes vs. nothing for the Bank of Canada (BoC)."

"Under some reasonable assumptions about monetary policy and the ultimate fate of trade relationships with the US, we see potential for the rates differential to compress, limiting CAD depreciation from here."