💱Classic G10FX Carry Trades Are Paying: Cable FX Macro

• Long AUD/GBP/NZD vs short CHF/SEK paid. USD/CHF and AUD/CHF were the clean expressions. We have previously noted carry trades working throughout the summer, and gains have now extended into August EoM as volatility remains suppressed. The VIX index, a global volatility benchmark, slipped below 15.0 on Thursday before reaching the lowest level since January. Low volatility usually translates into an appetite for carry trades.

• High-yield G10FX beat the two structural funders (CHF, SEK) over the last three months, which is what a low-vol carry regime is supposed to do. The gap is not huge in dollar terms — Cable/Aussie/Kiwi are only about +1% vs USD — but it is large on the crosses: NZD and AUD are up roughly 3% vs CHF and 3%+ vs SEK, which is where the carry actually compounded. The miss is Japan. JPY is the other textbook funder, but MoF/BoJ support in late July capped USD/JPY and left the yen roughly unchanged vs the dollar over three months, so anyone still running a naked short-yen book harvested carry and little spot.