The FX carry trade looks poised to continue shining in the second half of the year – Goldman Sachs
With so much happening already in markets during the first six months of the year, major currencies have been one of the less exciting spots. Outside of the Japanese yen, volatility among major currencies has been relatively subdued with much of it riding purely on dollar sentiment.
The greenback was hurt by the de-dollarisation narrative from last year but the US-Iran conflict has switched that around. Sure, erratic geopolitical policy handling by the US administration is not something that favours the dollar. However, the closure of the Strait of Hormuz has been an indirect tailwind. That in the sense that it has led to a surge in energy prices and in turn, shifted the Fed outlook considerably.
In that lieu, it seems that major currencies have been very much driven by only one thing this year. That being rate differentials, as argued by Deutsche Bank as well here.
In adding to that, Goldman Sachs is seeing scope for the carry trade to keep outperforming in the months ahead. That as they also continue to see no other drivers as being more important for major currencies at this stage. The firm notes that:
"We argue that carry bears more relevance for G10 FX markets now than it has at virtually any other point since the year 2000, and we continue to see value in carry strategies funded by G10 low-yielders (JPY, CHF, EUR, CAD) in the months ahead.
G10 FX currently boasts the combination of historically elevated levels of outright carry, and historically subdued levels of vol. A stabilisation in G10 policy rates at high and varied levels following the post-Covid inflation surge and recent energy shock has helped allow for this dynamic, but in practical terms for FX markets, it has produced exceptionally high levels of carry-to-vol currently, including near multi-decade highs for the likes of EUR/CHF and USD/CAD.
We view the opportunity to earn carry in G10 FX while remaining relatively insulated from (or even hedged against) drawdowns in risk as a useful option in multi- asset portfolios in the current backdrop."
The Japanese yen had been arguably the obvious choice in the months before but I reckon Goldman Sachs is not making special mention of that given that we are at levels risking intervention from Tokyo officials. As such, further gains in USD/JPY especially look rather limited. And if anything else, the currency pair is more of a buy on dips on any intervention play; all else being equal.
This article was written by fl9bde53b91e184082bbe3aa3acaaf2cb0 at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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