Currency traders

Is this the end of the carry trade as we know it? Currency traders seem to think so. The practice of borrowing in low-yielding yen and buying high-yielding “commodity currencies” has long been a central feature of foreign exchange markets. Now it appears to be unwinding. The Aussie dollar dropped more than 4 per cent against the US dollar last week, a huge move by any standards. The Canadian dollar fell by almost as much. Emerging market currencies that are treated as commodity proxies – such as the Brazilian real or Russian dollar – have been hit too. Two forces appear to be at work. The first is the rising US dollar – against almost everything. This has been driven, in part, by falling interest rate differentials as the US economic slowdown spreads to the rest of the world. Jean-Claude Trichet’s suggestion that the European... [read full story]