BNY analysts note neutral positioning in high-yield currencies leaves room for carry trade expansion amid improving risk appetite.
Carry trade flows are showing signs of a rebound similar to 2023, with neutral positioning in dollar-funded high-yield currencies creating space for exposure growth. BNY’s analysis highlights that iFlow Carry has shifted from statistically significant negative territory in June, signaling potential for aligned yield and flow dynamics ahead.
G10 currencies attracted broad inflows, while emerging market FX saw selling pressure, led by the Hungarian forint, South African rand (ZAR), and South Korean won. Latin America remains the sole region with sustained positive carry holdings this year, though analysts favor selective EM APAC high-yielders and EMEA duration for cleaner exposure.
The neutral stance in carry currencies is unusual, as these typically maintain positive statistical significance unless risk conditions are extreme. This suggests a temporary pause before a potential rebuild, particularly as balance-of-payments relief supports real rates in targeted markets.