Is the Carry Trade Coming Back?

Risk appetite leads the hunt for higher yields

As we move into summer, it appears as though the carry trade may be picking up. Economic hope is leading to some risk appetite, and forex traders are anxious for higher yields. Capital preservation is becoming boring — and investors are looking for some profits.

Right now, it appears that the down under currencies are gaining the upper hand. The yen carry trade appears to be gaining in popularity as forex traders move to take advantage of the higher yields offered by the Australian dollar and the New Zealand dollar.

However, there is a chance that the carry trade could fall out of favor. Here is GFT’s Boris Schlossberg points out about the Australian dollar in FX360:

With RBA declaring that it will keep rates steady for the time being, there appears to be little risk of rate cuts in the near term, however, the unit does remain vulnerable to risk aversion flows and any negative news out of China. Therefore while the carry trade in the Aussie continues to look attractive during the summer doldrums, it is not without risk.