Carry trading back in fashion at present

The Australian Dollar has been one of the best performing major currencies so far this year, gaining over 5% against Sterling so far.

One of the main reasons for this is that Carry Trading has come back into play again after having a quiet period on the markets.

Carry Trading is where an investor borrows money from an economy with an extremely low interest rate and shifts the funds over to lodge in one with a much higher interest rate, making a return on the difference.

With Australia having a fairly stable economy coupled with a solid rate of interest at 1.5% we have seen demand for the Australian Dollar rise as the year has progressed.

We have seen GBP/AUD test the 1.60 level on a couple of occasions in the past few months and this sustained pressure from the AUD may finally push it through. Recent communication from the RBA (Reserve Bank of Australia) have suggested that they are fairly happy with economic performance so I think the meeting minutes from their last interest rate decision will be key.

One thing that may turn around or start the ‘unwinding’ of carry trades is if we do start to see further rate hikes over in the U.S, as should the U.S interest rate start to draw close to that of Australia then investors may feel a little more comfortable earning almost the same in a slightly more stable USD.

RBA minutes tonight – Any hints on change?

Later tonight we have the RBA meeting minutes. These will give an indication as to what was discussed at the recent interest rate decision over in Australia and may be key as to where Australian Dollar exchange rates head next.

Personally, I do not expect any changes to interest rates being suggested and I would expect Governor Lowe to just confirm that things are moving along ok, but even with no major dramas we may see GBP/AUD test the 1.60 mark as the week progresses.

Feel free to contact our trading floor on 01494 725353 should you wish to discuss an upcoming Australian Dollar exchange as the GBP/AUD rate can move rapidly and trends do turn around based on global news as well as economic data so it is key to have an experienced traders view before making any key decisions.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.