Aussie 'Carry Trade' Back in Vogue (FXA) (AUD/USD)

July 11, 2012 9:14 AM EDT
At a time when other currencies around the world have withered in the face of U.S. dollar strength, the Aussie dollar is making huge gains. In the past month, CurrencyShares Australian Dollar Trust ETF (NYSE: FXA) gained 3.2 percent.

On the spot market, the AUD/USD climbed from below parity at the beginning of June to a recent high at 1.032. The move higher in the Aussie dollar could signal that the once popular carry trade is back on. The carry trade is strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate.

Rates in Australia are currently at 3.5 percent, making it one of the highest rates of the G10 nations. With equity markets struggling and bond yields in the U.S. at record lows, investors around the globe are on the hunt for new strategies, and as a result the carry trade looks like it is back on, a least for now. AUD/USD is trading at 1.0255 in early trading on Wednesday.

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