Currencies - Carry Trade Interest Rates

March 25th, 2009 by admin

Currencies - Carry Trade Interest Rates: If there aren’t any major currencies out there now with “whopping yields” as before, then why do interest rates still matter?

In short, they matter because if central banks signal that they are going to stop cutting rates and possibly even consider raising them again, then it eventually starts this carry trading game back up again.

Should this happen, the first major currencies to benefit from it will likely be the New Zealand and Aussie dollars. Why? Because they have the highest yields out there of any industrialized nation. The New Zealand dollar currently has an interest rate of 3% and the Aussie has a rate of 3.25%.

This is about six times more interest than most other major currencies around the world. Even the euro is only at 1.50% right now. Many currencies are at 0.10% to 0.50%. So it will be a while before they are even worth investing in from a carry trade (interest bearing) perspective anyway.

After new up trends are firmly established in stocks and commodities once again, then you should see emerging currencies start to benefit once again as well. (In fact, they have even larger interest rate yields than that of the Aussie and Kiwi dollars put together!)

Source: FX University Daily

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Posted in Cbot Futures, Commodities Futures, Currency Markets, Currency Values
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