An ETF Capitalizing on Forex Market Carry Trade Opportunities

Currency traders have been raking in a tidy profit by capitalizing on the spread between record low yields in some developed markets and higher yields in other areas. Investors can also benefit from this so-called carry trade strategy through a currency-related exchange traded fund.

The carry trade, where investors borrow in Group of 10 currencies with low interest rates and use the cash to buy assets in higher yielding markets, is set for its largest annual gain since 2012, Bloomberg reports.

Driving the carry trade strategy this year, loose monetary policies around the globe have driven rates to the ground.

“Central-bank policy is always going to be the number-one driver of our strategy,” James Ong, senior macro strategist at Invesco, told Bloomberg. “The ability to acknowledge the valuation and policy dynamics in Japan was the number-one thing that helped us. Diversifying some of our trades away from being dollar trades also helped as well.”

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Traditionally, investors may implement the carry trade strategy by borrowing on cheap Japanese yen and buying higher yielding New Zealand or Australian dollars.

“Aussie and Kiwi have been moving, despite central banks saying more cuts may be in the pipeline,” Ugo Lancioni, a money manager at Neuberger Berman Group LLC, told Bloomberg. “Capital appreciation has allowed the strategy to perform well.”


Currency traders have also been spoiled with choice as a number of central banks, like those in Europe and North America, maintain record low interest rate policies.