Post by jeffolie on Aug 16, 2007 17:53:22 GMT -6
Yen Carry Trade Unraveling Faster
Shu-Ching Jean Chen, 08.16.07, 8:18 AM ET
It is official. The much-celebrated global carry trade, revolving around the low cost of borrowing in yen (at interest rates barely above zero), is coming unwound in response to the global credit crisis.
The money wheel is spinning in reverse, as the rise in the low-yielding yen is accompanied by sudden falls in various regional high-yielding currencies: the New Zealand dollar, the Australian dollar and, to a lesser degree, the Korean won.
“The flushing out of [the] carry trade has been dramatic for the past two days, particularly today,” said Irene Cheung, a Singapore-based currency strategist at ABN Amro. “We’ll have to see fluctuations, a quick breakdown before the market stabilizes. People are not going to come back so soon.”
Virtually overnight, currency traders found themselves in a new world where they would now play a more meaningful role in guiding investors as to the likely direction of the currency charts, whereas previously currency movements were readily predictable. (See " A Yen For Currency Trading")
The yen strengthened to trade at 116 to the dollar Thursday afternoon after briefly breaching the 116 level, wafting up 7% from its nadir on June 22, when it traded at 124.09 yen to a dollar. It is now at five-month high.
New Zealand’s “kiwi,” the currency most heavily favored in the yen carry trade, was hit the hardest: a free fall of more than 15% since it fetched a valuation of 0.811 U.S. dollars, a 22-year high, last month.
www.forbes.com/home/markets/2007/08/16/carry-trade-unwinding-markets-equity-cx_jc_0816markets05.html
Hundred of articles have been written about how important the yen carry trade is to world liquidity.
Shu-Ching Jean Chen, 08.16.07, 8:18 AM ET
It is official. The much-celebrated global carry trade, revolving around the low cost of borrowing in yen (at interest rates barely above zero), is coming unwound in response to the global credit crisis.
The money wheel is spinning in reverse, as the rise in the low-yielding yen is accompanied by sudden falls in various regional high-yielding currencies: the New Zealand dollar, the Australian dollar and, to a lesser degree, the Korean won.
“The flushing out of [the] carry trade has been dramatic for the past two days, particularly today,” said Irene Cheung, a Singapore-based currency strategist at ABN Amro. “We’ll have to see fluctuations, a quick breakdown before the market stabilizes. People are not going to come back so soon.”
Virtually overnight, currency traders found themselves in a new world where they would now play a more meaningful role in guiding investors as to the likely direction of the currency charts, whereas previously currency movements were readily predictable. (See " A Yen For Currency Trading")
The yen strengthened to trade at 116 to the dollar Thursday afternoon after briefly breaching the 116 level, wafting up 7% from its nadir on June 22, when it traded at 124.09 yen to a dollar. It is now at five-month high.
New Zealand’s “kiwi,” the currency most heavily favored in the yen carry trade, was hit the hardest: a free fall of more than 15% since it fetched a valuation of 0.811 U.S. dollars, a 22-year high, last month.
www.forbes.com/home/markets/2007/08/16/carry-trade-unwinding-markets-equity-cx_jc_0816markets05.html
Hundred of articles have been written about how important the yen carry trade is to world liquidity.