Carry Trade On The Rise As Volatility Cools, Rate Differentials Improve

Through there is growing concern as to how long high yielding currencies like the New Zealand and Australian dollars can keep their rates at record highs, interest in the carry trade has still improved over the past week. The DailyFX Carry Trade Index rose $296 since last week with help from a modest cooling in currency market volatility and a general improvement in the outlook for the yen crosses.

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• Carry Trade On The Rise As Volatility Cools, Rate Differentials Improve
• Fed And BoE Boost Risk Appetite By Widening Their Collateral Nets
• Caution Still In Place As Market Questions High Yielders Buoyancy

Through there is growing concern as to how long high yielding currencies like the New Zealand and Australian dollars can keep their rates at record highs, interest in the carry trade has still improved over the past week. The DailyFX Carry Trade Index rose $296 since last week with help from a modest cooling in currency market volatility and a general improvement in the outlook for the yen crosses.

There has been a tangible rebound in risk appetite over the past few weeks; and the carry trade has been one of the primary benefactors. Considering the thawing in credit markets recently, it seems that the cooperative effort by global central banks to revive liquidity is paying off. In fact, even with conditions improving, the Bank of England and Federal Reserve have upped their efforts to put financial markets on an even keel once and for all. Both the Monetary Policy Committee the Fed announced it they were widening their definitions of acceptable collateral for access their respective liquidity injections. These efforts must be potent indeed considering volatility has cooled and the carry basket has rallied over the past few weeks despite headlines of further writedowns from big banks and warnings from the BoE that falling UK commercial property values may trigger considerable defaults and another wave of massive losses for banks. And, while conditions seem to be improving for the carry trade, the mood is still one of caution. While pairs like USDJPY, USDJPY and GBPJPY have put in for a tentative trend change, the higher-end of the yield curve is actually starting to fall as traders expect the central banks with high benchmark rates will eventually be forced to ease like the Fed, BoE and BoC.