The euro and the Aussie are often considered the risky end of the FX spectrum. However, the Aussie is currently more sensitive to the QEIII-inspired risk rally than the euro. The chart below shows EURUSD (white line) and AUDUSD (orange line), as you can see the pair usually trades closely together, but they have diverged in the past couple of days.

There are a couple of reasons for this:

1, EURUSD may be struggling to gain traction in the face of month-end dollar demand. If this is the case then upward pressure on the dollar should ease off from tomorrow.

2, The QEIII-expectant risk-rally offers more upside to the Aussie than it does to the euro. The correlation between AUDUSD and the S&P 500 is 85% since the start of July, rising to 92.6% since the start of August. The correlation between EURUSD and the S&P 500 is not as strong - at 70% since July and 72% since August.

So the Aussie may benefit more from the wave of QEIII euphoria than the euro. However, this also means that it may be a more volatile ride for the Aussie going forward, and if we see lurches in market sentiment the Aussie is likely to be more exposed than the euro.

We will keep our eye on this one....

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