Future of Carry Trade – U.S. Dollar

U.S. dollar is likely to replace Japanese yen on the carry trade arena as the short currency. According to the currency pairs yield analysis, Great Britain pound, Brazilian real and Hungarian forint combined made over 17% against dollar this year, while buying those currencies against yen yielded only 9%.

Anticipated recession in U.S. is one of the reasons fueling dollars decline. Federal Reserve had to cut rates from 5.25 to 4.50 this year to ease the financial situation around the banks’ subprime lending. Housing crisis has already started to pull down other economic indicators — such as retails sales and employment statistics. High oil prices caused by the weak dollar and global instability also possess a bad influence on the U.S. economy.

All these factors make dollar any easy target for the Forex long-term bears. Especially after the interest rate on dollar was lowered and it now became profitable to keep short positions on dollar if you leverage it with some high-yielder as Australian or New Zealand dollars. The only hope for USD is the fact that it is not in the interest of the majority of the world countries for the dollar to depreciate. As the most countries keep their currency reserves in dollar they will do their best to keep dollar above their “risk limit”.

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