Carry trade investors are seeing opportunity in borrowing US dollars and buying Australian dollars.
The WSJ‘s David Roman writes in the article Carry Traders Go Exploring in the Outback that Australia’s economy is rebounding on the strength of Chinese demand for natural resources. As a result, the Australian dollar is getting renewed interest.
Roman reports that Australian interest rates are already relatively high at 3% and could rise higher in the near future. At the same time, the U.S. dollar has been lagging other world currencies and the continuing recession makes an interest rate hike unlikely for now.
US investors can gain exposure to the Australian dollar through the Rydex CurrencyShares Australian Dollar Trust (FXA). The $500 million fund is up 40% from the March lows and pays a current interest rate of 2.45%.
To gain exposure to Australia through equities, ETF investors should consider the iShares MSCI Australia Index Fund (EWA). The $1.7 billion fund yields 2.7% and top holdings include BHP Billiton, Westpac Banking and Commonwealth Bank of Australia.