16 Jun 2014
Carry trades are at risk - Scotiabank
FXStreet (Córdoba) - Camilla Sutton, analyst at Scotiabank notes that risk aversion and oil prices rise might put carry trades at risk.
Key Quotes
“The current environment of low volatility and high liquidity has supported carry trades all year; however with building geopolitical risk, including Russian/Ukraine and unrest in Iraq, driving oil prices (WTI is above $107 and Brent is above $112) there are several building risks: 1) a spike in risk aversion; and 2) rising oil prices will slow the outlook for growth”.
“These developments have different impacts on the USD, which is confusing, but the market’s reaction is likely to be delivered in different ways depending on timing”.
“The near‐term risk shifts to a strong USD on risk aversion; but potentially a lower USD later this year as a result of a dampening in the economic outlook”.
“Currencies who are at risk of near‐term weakness include: AUD, NZD, CAD, EUR, NOK and SEK (as well as the EM)”.
Key Quotes
“The current environment of low volatility and high liquidity has supported carry trades all year; however with building geopolitical risk, including Russian/Ukraine and unrest in Iraq, driving oil prices (WTI is above $107 and Brent is above $112) there are several building risks: 1) a spike in risk aversion; and 2) rising oil prices will slow the outlook for growth”.
“These developments have different impacts on the USD, which is confusing, but the market’s reaction is likely to be delivered in different ways depending on timing”.
“The near‐term risk shifts to a strong USD on risk aversion; but potentially a lower USD later this year as a result of a dampening in the economic outlook”.
“Currencies who are at risk of near‐term weakness include: AUD, NZD, CAD, EUR, NOK and SEK (as well as the EM)”.