The carry trade was back in fashion Wednesday following news of co-ordinated action from a number of the world’s biggest central banks to tackle the liquidity squeeze in global capital markets.
High-yielding currencies such as the dollars of New Zealand and Australia were driven sharply higher after the move by the central banks of the US, UK, eurozone, Switzerland and Canada helped equity markets bounce and government bond prices fall.
Charles Diebel at Nomura said the move meant markets would be able to breath a sigh of relief, at least until January. In this more stable and risk-friendly environment, carry trades flourished, sending the yen sharply lower. The trade is characterised by investors borrowing cheaply in the low-yielding Japanese currency to buy higher-yielding assets elsewhere.
The highest yielding currencies, the New Zealand dollar and the Australian dollar, were up across the board.
read more:Central banks boost Kiwi and Aussie
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