Reserve Bank of Austrialia rates: 3.00%
U.S. Federal Reserve rates: 0.25%
FXCM currently pays 1.35% or $0.37 per day per $10,000 contract.
My goal is to find a currency that will effectivly hedge away price depreciation (and appreciation) risk while earning a fair amount of carry. 1.35% does not sound like alot initially, but at 200 times leverage, it is significant.
I've identified three variables that together explain over 91% of the AUD/USD movement. They are the CAD/USD pair, the AAA corporate risk premium, and the VIX. The AUD/USD is negativley correlated to each of these variables. That is, if one goes up, the AUD/USD should fall.
The regression equation for the AUD/USD is as follows:
AUD/USD = 1.8306 -0.8354CADUSD -0.059AAARP -0.0006VIX
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjR_ifTlGSO8t6AiCN6tDr_M9YRP9A7I6f1zi3tON-ONMKpYig1SQRFpuRfgxhGWCXeRR9cQneQFJvi_-86LjMvi_RXPevxSa5szVW5TSQ81RN4SfDRlMWuaQYfjCKhD0G88DURuX-mU0uK/s400/audusdmultireg.bmp)
Comparing Prices
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEguJ2bAPlboXYPMlmt_tEjGJmhEnIlupx_VFtV1u1gvFOUSG-xrERrHqJR-QQ4W5olxQVUmv1qExn3wi4XWCygZ_6QYK_TVy5O_6-u5Uj5HjmamObAX3PHrVsavq-w81GotD6J0mMjLatJe/s400/regcadusdaudusd.bmp)
Comparing Periodic Returns
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhnFSdm3RMTTdfs9MhK241WqpJ1NOUTmIj_1Dxgp35vJW3z2wN-GWWIn9q6klGNOfy7cUrAs_AVp5zqtxvdL5EBosnE3n-nBQ4kPHKkOVWozssk8JKsJyPLxFfmaBcCBfsHdkFj3u_GlyO2/s400/periodicreturnscadaudusd.bmp)
6 month rolling correlation AUD/USD, CAD/USD: -0.94
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3jbPX2EuUUEtY_1d-g8-9cO2V95peZXTdNdRxeaJuHDGETieGXGfSVyhMKN8aFCMjgb4bDOhDE44CP9LzsiPNgNun-a_ioVZtt22J70-FtFrATIcb1bLNKQ4NRyIuKftRf5-VfQhDkdKG/s400/6mrollingcor.bmp)
AUD/USD and the VIX
![](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwrho2ZHEip_SqKL1uA9179uzk_G03loVPFY0v1gW9szdkmHN4nPIC36gyJR84oZ9DSkUjk8-V4lmjwkaEBs0D_DsfI_jAtMUrJ0ZVggK6OE8XAG5Mkhpbw818U4IXukLLun4t9dHXKfV4/s400/vixaudusd.bmp)
AAA Corporate Bond Risk Premiums
AAA Risk Premiums as functions of CAD/USD and AUD/USD