Hedging the carry trade
BACKGROUND
Despite credit market turmoil, recent weeks have seen the Australian and New Zealand currencies reach multi-year highs against the US dollar, while cable also reached a 26-year peak. At the same time, a range of emerging market currencies (as diverse as the Brazilian real, Indian rupee and Hungarian forint) have been notable performers. What is the common thread? High domestic interest rates, also known as 'yield'.
The carry trade has become the predominant focus of markets in general
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