Investors reaped bigger gains since the start of June by funding investments in higher-yielding currencies with dollar-denominated loans than similar strategies using Japanese yen- or Swiss franc-based funding.
A basket of currencies including the legal tender of Australia, Canada and New Zealand and Brazilian real financed with U.S. dollars returned 7.8 percent since the start of June, compared with 2 percent when funded in yen and a loss of 2.5 percent in Swiss francs, according to data compiled by Bloomberg.
Expectations that the Federal Reserve will keep interest rates at record lows into next year combined with tradersÃ¢â‚¬â„¢ speculation that policy makers may be forced to resume buying securities to help provide additional stimulus to the economy makes dollar-based funding attractive. Carry trades financed in dollars and yen lost money in the first five months of the year, while the franc-funded trades returned 8.2 percent.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.