Aussie Strides Into Funding Leg of Emerging-Market Carry Trades

Carry traders’ search for an alternative funding currency to the dollar for bets in emerging markets has yielded a surprise winner -- the Aussie.

Strategies that seek to profit from interest-rate differences between higher-yielding currencies and lower-yielding ones are producing the biggest returns when funded by the Australian dollar rather than the greenback, euro or British pound and about the same as the yen, according to data compiled by Bloomberg. The outperformance comes amid a dovish tilt by Australian policymakers since early October that contrasts with the hawkish stance in the US and Europe.