The correlation between two currencies in the Forex market is driven by various factors: Economic Indicators: These include factors like inflation rates, interest rates, Gross Domestic Product (GDP), employment data, etc. If two countries have similar economic indicators, their currencies tend to move in the same direction, leading to a positive correlation. Conversely, if the economic indicators of two countries move in opposite directions, their currencies tend to have a negative correlation. Trade Relationships: Countries that trade heavily with each other or share similar trading partners often have positively correlated currencies. For example, Australia and New Zealand have a significant trading relationship, so their currencies (AUD and NZD) often move together. Geopolitical Events: Major political events, changes in government policies, and global crises can also affect currency correlations. For instance, if political instability affects one Eurozone country, it might negatively impact the euro’s value against multiple currencies. Commodity Prices: Some currencies, known as commodity currencies (like AUD, CAD, NZD), are closely tied to the prices of specific commodities. When the price of these commodities changes, it can affect the value of these currencies and their correlation with others. Remember that correlations are not constant and can change over time due to variations in these factors. Therefore, traders should continually monitor currency correlations to adjust their trading strategies accordingly.