The key with carry trades is not the absolute level of interest rates but the direction of interest rates which is why the NZD is not appreciating against the AUD. Like you said, the NZD is facing a recession an as such we would far sooner see a rate cut than a rate hike from the RBNZ. Australia's economy on the other hand has been holding up well - which is keeping the Australian dollar near its 25 year highs.
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Originally Posted by tom64
The carry trade seems to be a bad idea at the moment do to all of the volatility and uncertainty surrounding the market. On basic carry trade ideas the NZD should be appreciating against the AUD which is definitely not the truth. The GBPJPY has been going in the opposite direction for months. Why, because of the uncertainty surrounding these high interest rate area countries. The BOE wants to cut rates but can’t because of inflationary concerns. NZD is facing an imminent recession, and with oil still at 145 it’s any ones guess where the markets will head. This all makes the carry trade a very dangerous strategy to undertake.
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