Quantifying The USD-JPY Carry Trade Ratio Following Australia's Interest Rate Announcement
The earlier announcement of a 25 bps rate hike by the RBA was not a big surprise. What was, however, was the knee-jerk reaction by both the USD and the JPY, and specifically the relative sizes of said jerk. As both currencies are funding currencies to AUD longs, the relative reactions provide a good, if crude, way to quantify the relative concentration of shorts in any given currencies (USD and JPY). Then again, it may merely indicate that tonight's USD-trading night shift at Goldman had much more Red Bull than the OZ one. In either way, both the initial knee jerk reaction as well as the subsequent follow through, indicate a roughly 50-100% greater concentration of dollar than yen-based shorts: in other words: the carry ratio funded in USD and JPY is between 2:1 and 3:2.
Chart 1 below presents the relative reaction following the immediate announcement (aka the kneejerk). The drop in the Yen was -0.2% compared to the dollar's -0.4%.
Chart 2 presents the stabilized follow through. While the Yen was still at -0.2%, the dollar had tapered off to -0.3%.
A 50-100% greater carry funding in USD vs JPY would not be surprising, especially since the dollar is backed entirely by rapidly deflating housing assets. However, any announcement by the BOJ that would even hint the country is adopting QE, and expect the carry ratio to shift significantly back in the traditional, Yen-based, direction.
(2 votes)
»
- Login or register to post comments
- Printer-friendly version
- Send to friend
on Mon, 11/30/2009 - 23:17
#147219
The knee jerk ain't over if the BOJ is set to go QE... damn what other banks are making announcements soon? Tomorrow is gonna be a tough one for GS to float and distribute all day to exit on VWAP by the close.
on Tue, 12/01/2009 - 08:18
#147487
All hot money goes to Australia?
on Mon, 11/30/2009 - 23:22
#147225
Not sure, in this context, if knee-jerk is much different than circle jerk.
on Mon, 11/30/2009 - 23:27
#147231
on Mon, 11/30/2009 - 23:37
#147240
Thanks RT for the bedtime story ;- )
on Tue, 12/01/2009 - 00:27
#147282
I know it's been said before, but when a market becomes this predictable and detached from fundamentals, the end will be messy. Blankfein's background is J. Aron, a commodities trading firm. That sums up the extent of GS right now.
on Tue, 12/01/2009 - 00:31
#147287
she is a gorgeous peice of flesh, but shouldnt a Japanese girl accompany the Japanese Equity Index?
on Tue, 12/01/2009 - 01:49
#147346
Was kindof hoping for someone a little more...Japanese.
on Tue, 12/01/2009 - 04:23
#147435
Robotrader rock! ZH isn't bad, either.
on Mon, 11/30/2009 - 23:46
#147253
Yep just as planned...in 3,2,1......
on Mon, 11/30/2009 - 23:52
#147258
ok stupid question time: If I am borrowing in USD and investing in AUD, why am I buying USD and selling AUD if they raise rates in Aus? Doesn't this make carry trade more attractive?
on Mon, 11/30/2009 - 23:56
#147261
I'm so tired of reading the dollar is backed by whatever is on the Fed's balance sheet. It's not like you can take a $100 bill to the Fed and exchange it for your minuscule share of their residential RE holdings, so it doesn't matter if their assets are 100% gold or 100% worthless mortgage derivatives - either way you have no claim to any of it.
Just because one of the Die Hard movie plots implied dumping the Fed's gold in the ocean would cause monetary collapse doesn't make it true.
on Tue, 12/01/2009 - 02:34
#147380
Could JPY becoming a better carry cause the USD short squeeze that everyones been waiting for?
on Tue, 12/01/2009 - 02:34
#147381
Could JPY becoming a better carry cause the USD short squeeze that everyones been waiting for?
on Tue, 12/01/2009 - 03:03
#147401
weeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
on Tue, 12/01/2009 - 03:09
#147406
That's a clever bit of analysis Tyler.
on Tue, 12/01/2009 - 04:00
#147427
Very clever.
Equally as clever as your avatar.
on Tue, 12/01/2009 - 04:05
#147428
I think BoJ is trying to boost that ratio, but what they just announced won't work for the time being when it comes to USD. Using their 0.1% interest loans, one could do a riskless trade by using proceeds to buy 3-months sovereign debt and use it as collateral. US 3-months T-bills though, are yielding too little: just 4 bps these days.
on Tue, 12/01/2009 - 04:44
#147437
A Squid Got Kicked Out Downunder Today.
Malcolm Turnbull was the leader of the Liberal Party in Australia but got kicked out today. The reason - according to party policy he was suppose to oppose the government's Emission Trading Scheme but, being an ex Goldman Sachs guy he got the call from the head squid and voted for it. Fortunately he got defeated in a leadership challenge with 42 to 41 votes and there is now still a chance that the legislation can be blocked.
on Tue, 12/01/2009 - 05:00
#147441
Pariah Carry with her one and only hit single. Saving all my asian love for an investment hero, spending all my cash on drunken rockstar wannabes.
http://www.youtube.com/watch?v=eBAhan8ZNGI
on Tue, 12/01/2009 - 08:35
#147492
The USD/Yen carriers are working OT now to pump the Euro higher; but stangely after gold hit $1200 earlier and slipped back, the stock futures are also going nowhere despite euro now within reach of recent high of 1.51x; watch todays stock market closely, we might see some strange reversals, probably more distribution to avoid the mad rush of year-end book closing for some.
on Tue, 12/01/2009 - 08:39
#147494
I am new to FX markets, If the AUD rate was hiked by 25bp it means AUD should be more dear relative to the opposite currency. Thus shouldn't AUD buy more JPY then previously why did things happen in the reverse, what's wrong with my logic???. Please somebody replu
Before 25bp increase
1 AUD = 80.18 JPY
After Increase announcement
1 AUD = 79.75 (should instead be more than 80.18)
on Tue, 12/01/2009 - 09:12
#147523
There you go with those (1st order) derivatives again...
on Tue, 12/01/2009 - 09:16
#147527
When AUD rate increases why did JPY & USD appreciate shouldn't in instead depreciate???