Carry-Trade Currencies Rally as Fed Weighs Rate-Rise Timing

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Currency investors lamenting the dollar’s recent wobble are taking comfort in the revival of one of their most popular strategies: the carry trade.

Using the U.S. currency to purchase higher-yielding assets from Australia and New Zealand to Brazil and Mexico is again bearing fruit, after such trades hemorrhaged cash last quarter, data compiled by Bloomberg show. A gauge of the greenback has fallen from a decade-high reached March 13 amid debate on the timing of U.S. interest-rate increases.

Minutes from the Federal Reserve’s latest policy meeting released Wednesday reveal a central bank divided on when the American economy will be ready for higher borrowing costs. With yields on U.S. government securities remaining near historic lows and a slide in volatility, investors are turning to assets outside the world’s largest economy.

“It’s going to be a quiet month, looks like, and that should be good for the high-yielders,” Daniel Brehon, a New York-based strategist at Deutsche Bank AG, said in a phone interview. “They all got sold off when the dollar was rallying, and now they’re at attractive levels. So in the absence of any catalyst for the dollar, there’s going to be a good yield pick-up there.”

Carry Trade

The Fed has held borrowing costs in the U.S. near zero since 2008. The benchmark interest rate in Australia, for example, is a comparably high 2.25 percent after its reserve bank refrained from lowering rates this week.

Investors selling the dollar to buy its major counterparts have profited on most carry trades this month, according to data compiled by Bloomberg. That contrasts with the three months through March, when all except two of those carry trades showed declines.

Russia’s ruble rose a seventh day on Thursday, the longest streak of gains since September 2013, while the Indonesian rupiah also climbing. Global foreign-exchange volatility has declined to the lowest since March 6, a JPMorgan Chase & Co. gauge shows.

“The backdrop has remained rather favorable for emerging markets for longer than we were initially expecting,” Credit Agricole SA analysts led by Sebastien Barbe wrote in a note Wednesday.

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