Roger Nusbaum submits: Jyske Bank had a research piece on their site yesterday suggesting use of the Czech koruna as a funding currency for carry trades instead of the Swiss franc.
They see visibility for the Swissi to go higher, not what you want a funding currency to do, because growth in Switzerland has been picking up and the SNB (the central bank) has been raising rates, albeit slowly.
They like the koruna as a short because rates are very low -- 2.50% for its repo rate -- and they feel political deadlock will cause further weakness in the koruna. Well maybe, but the Czech National Bank forecasts inflation between 2.8% and 4.2% so I'm not sure how long rates will stay this low.
The reason I bring this up is that I view various carry trade dynamics as expression of the market's willingness to take on risk. While this is not a trade too many of us have access to, shorting the currency of an emerging (or maybe frontier) market is far from riskless. While I don't know, I can't imagine Jyske is the only bank willing to short the koruna.
This chart compares the kiwi to the yen; the last three months have been good to the carry trade. While this pair might be the poster child for the carry, there are several other pairs to look at too. The higher yielders include the Hungarian forint, Icelandic krona, the Aussie, Turkish lira, Brazilian real and the South African rand. The low yielders obviously are the yen and the swissi.
The market's willingness to take risk can be used as an indicator or a contrarian indicator; how you might use it probably depends on whether you are more of a Roubinian or Kudlowite.
