CURRENCIES: Carry-Trade Oriented

Posted on December 18, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

DEFINITION

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Carry-Oriented Currencies are higher-yielding currencies of countries where interest rates are generally higher than those of countries with lower-yielding currencies.

These higher-yielding currencies are targeted for “carry trades,” where investors borrow money in a low-interest rate currency and invest in a higher yielding currency, potentially profiting from the difference in interest rates.

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What is a CARRY TRADE?

Posted on August 8, 2024 by Dr. David Edward Marcinko MBA MEd CMP™

By Staff Reporters

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A carry trade is a tactic in which an investor borrows a currency with lower interest rates and invests the proceeds in a higher-yielding asset, often in a different market with higher interest rates.

CITE: https://www.r2library.com/Resource

Over the past few years, many funds were using this strategy by buying US equities or selling US bonds with money borrowed from the yen because of the huge disparity in interest rates between the US and Japan. Japan kept the yen cheap on purpose because its economy is primarily export-driven, and the low price of Japanese products kept exports thriving. And the dollar, as the dominant global currency, has remained impressively strong through thick and thin.

This was all fun and profits, until Japan raised interest rates for the first time in 17 years last week. Suddenly, the yen wasn’t as cheap as it once was. And at the exact same time, the US is expected to cut interest rates in September, which means the dollar would become less valuable, completely throwing this international carry trade out of balance

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