News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
More View more
Real Time News
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 93.79%, while traders in Wall Street are at opposite extremes with 77.39%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/mpKyIFa66N
  • Forex Update: As of 04:00, these are your best and worst performers based on the London trading schedule: 🇯🇵JPY: 0.18% 🇨🇭CHF: 0.08% 🇪🇺EUR: 0.05% 🇨🇦CAD: -0.10% 🇳🇿NZD: -0.16% 🇦🇺AUD: -0.21% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/Rc9CqP87Q6
  • Indices Update: As of 04:00, these are your best and worst performers based on the London trading schedule: US 500: -0.29% Wall Street: -0.42% Germany 30: -0.43% FTSE 100: -0.45% France 40: -0.50% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/XAx5GBxtcH
  • (ASEAN Fundy) US Dollar Outlook: Federal Reserve in Focus for SGD, THB, IDR, PHP Amid Covid Risks #ASEAN #USD $USDSGD $USDTHB $USDIDR $USDPHP #Covid https://www.dailyfx.com/forex/fundamental/article/special_report/2021/07/26/US-Dollar-Outlook-Federal-Reserve-in-Focus-for-SGD-THB-IDR-PHP-Amid-Covid-Risks.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/Sry0bENjJC
  • What is your forex trading style? Take the quiz and find out: https://t.co/YY3ePTpzSI https://t.co/Fvz238T08f
  • Commodities Update: As of 02:00, these are your best and worst performers based on the London trading schedule: Silver: 0.36% Gold: 0.21% Oil - US Crude: -0.43% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/V7Tt9cjqNX
  • Forex Update: As of 02:00, these are your best and worst performers based on the London trading schedule: 🇯🇵JPY: 0.17% 🇬🇧GBP: 0.07% 🇨🇭CHF: 0.04% 🇳🇿NZD: -0.06% 🇦🇺AUD: -0.12% 🇨🇦CAD: -0.13% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/1xgQGURmLU
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 93.48%, while traders in Wall Street are at opposite extremes with 78.79%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/y1ftqNZqRG
  • 🎯 Bitcoin extending its surge through the weekend to trade back above $35K. Seeing some serious upward momentum here, but in light of Fed event risk this week, it may be prudent for short-term tactical traders to consider unwinding exposure a bit. #Bitcoin $BTC $BTCUSD https://t.co/OZjpMGIINQ https://t.co/3miq9M8YS9
  • Did you know a Doji candlestick signals market indecision and the potential for a change in direction. What are the top five types of Doji candlesticks? Find out https://t.co/c51s3ISNw2 https://t.co/3y2qs4VDuu
Trade War Tension and the Impact on the FX Carry Trade

Trade War Tension and the Impact on the FX Carry Trade

Nancy Pakbaz, CFA, Markets Writer

Trade War and Carry Trades Takeaway:

  • President Trump threatening China with more tariffs has impacted the global equity market
  • Australian cash rate remained the same despite analyst predictions for a rate cut
  • AUD/JPY and NZD/JPY face negative carry trade returns

Potential Trade War Impacts Global Equity Market

President Trump threatens China with increasing tariffs on $200 billion of goods from 10% to 25% after he states that China broke their deal. This has caused unease in the market resulting in a drop in the global equity market and unwinding of carry trades.

Using the carry trade strategy works best in low volatility markets and when central banks look to increase rates. The purpose is to make profit by buying high yield currencies and selling low yield currencies. When uncertainty surrounds the market, such as the trade war between the U.S and China, this can push investors to close out their carry trade out of fear that there may be large losses.

Decrease in Carry Trade Return for AUD/JPY

High yield currencies tend to be AUD and NZD with low yields being JPY. However, the recent announcement from the Reserve Bank of Australia of a hawkish policy (i.e., keeping the cash rate at 1.50%) took investors by surprise since analysts forecasted a rate cut. Although the RBA kept the rate the same, it is not a question of if there will be a rate cut, but when. This has led investors to close out their carry trade resulting in AUD/JPY annual carry trade return to be -4.02%.

NZD/JPY Experiences a Negative Carry Trade Return

In the case for NZD/JPY, the Reserve Bank of New Zealand already made their cash rate cut on May 8th bringing the rate down to 1.50% from 1.75% resulting in an annual carry trade return loss of -3.40%. What may be worrisome for investors is, generally, when interest rates decrease that means that the demand for that currency will also decrease. This can result in currency depreciation, which will create losses and exaggerate losses if leverage was used.

All this to say, keep an eye out for what happens with the U.S and China’s trade dispute. This may continue to have large effects on the global economy resulting in an increase in the closing of carry trades.

Written by Nancy Pakbaz, CFA

Follow Nancy on Twitter @NancyPakbazFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES