Could The Dollar Carry Trade End Abruptly And In Tears?
Dear Friends The dollar carry trade remains in vogue for as long as the dollar keeps depreciating in value and interest rates remain low. What happens when the dollar appreciates? Recently, as the US Dollar Index has improved, money has swiftly come out of the risk trade safe havens — gold and commodities — to which it ran to protect against a further dollar decline. As an example, gold fell more than 5%, when the dollar index improved by 1.5% on a single day! Given the dollar’s inverse correlation with nearly all asset classes, there are many triggers for the demise of the dollar carry trade. For example, a sustained pullback in stock markets anywhere in the world — Asia, Europe or America — could dim the carry trade’s attraction immediately as investors rush to the safe haven of the dollar. As they exit and need to meet their margin calls, the speculation in other asset classes could end abruptly. Everybody’s piling into equities, bond and commodities, selling the dollar in carry
