What’s Driving FX Isn’t Just Yield - It’s Reverse Carry
The search for capital appreciation is on.
The Australian flag flies outside the Reserve Bank of Australia (RBA) headquarters in Sydney, Australia.
Photographer: Brendon Thorne/BloombergThis article is for subscribers only.
This wasn't supposed to happen. The central banks of Australia and New Zealand lowered benchmark interest rates and their respective currencies promptly strengthened.
Traders puzzled by the way foreign-exchange markets are behaving should consider that potential for capital appreciation, in addition to yield, may be a significant driver of recent moves.