Carry trades were in demand today as the high-yielding Australian and New Zealand dollars surged against the greenback and Japanese yen. So why did USD/JPY fall below 90? The first thing to consider is that US interest rates are now lower than Japanese interest rates, but traders should also keep in mind that the greenback was the currency with the fundamental driver behind it. To a certain degree, there is less of an argument for the Bank of Japan to step in and intervene in the currency markets based on the Japanese yen’s gains against the US dollar alone, as the former actually fell versus most of the majors, including the euro and British pound, on Tuesday. However, if the Japanese yen rally accelerates on a broader basis, the risks of intervention will increase. Looking ahead to Wednesday, traders should keep in mind that the Organization of the Petroleum Exporting Countries (OPEC) will be meeting. As a commodity currency, the Australian dollar holds a solid correlation with oil (0.74 over the past 20 days). Since OPEC is anticipated to announce a sharp cut in production, a surge in oil could subsequently trigger a rally for the Australian dollar. For more on this, check out our Australian Dollar Forecast.
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