Quants are divining the dollar’s path in VIX and iron ore

For the better part of 2017, trading the dollar has meant trading the bond market but not anymore. In fact, now you’re just as likely to be able to divine the dollar’s direction against the yen by tracking measures of stock volatility and the price of iron ore as you are by monitoring the U.S.-Japan yield spread, according to Quant Insight, a research firm that develops models to identify the macroeconomic
drivers of various assets.

At a time when investors are agonizing over whether an almost three-year rally in the dollar has further room to run, understanding the evolving dynamic between currencies and other assets has become increasingly critical. The growing clout of metals and equity-market price swings shows foreign-exchange traders are shifting their focus from monetary policy to the prospects of fiscal stimulus and geopolitical risk, said Mahmood Noorani, a former portfolio manager at BlueCrest Capital Management who founded Quant Insight in 2014.

Quant Insight isn’t the only firm monitoring the influence of the VIX. Emerging-market currencies have been unusually sanguine about the decline in U.S. stocks, as improving economic outlooks in developing nations encourage investors to pile into the region’s assets, according to Goldman Sachs Group Inc. The
risk is investors will be caught on the wrong side if the S&P 500 selloff accelerates, like it did around mid-2016.

Source: Bloomberg

Junior Trader Ivan Ivanov

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