Emerging Markets Shine as FX Traders Flock to Carry Trades
Emerging markets have been attracting attention from FX traders in 2026 due to high-yielding currencies and low volatility, according to Paul Golden. The strongest performers include the Brazilian real, Mexican peso, and South African rand, which have all benefited from their respective interest rates and commodity exposure.
The carry trade has been a successful strategy this year, with one measure up approximately 12% by April, its strongest start since 2023. Borrowing JPY/CHF to buy BRL/MXN/ZAR has provided high returns due to the combination of high yields in Brazil and South Africa and relatively subdued FX volatility.
Latin American currencies have been rising 19% against the dollar, while Asia's currencies have attracted attention due to their commodity exposure. The Korean won, Indian rupee, Indonesian rupiah, Philippine peso, Thai baht, and renminbi are among those seeing increased activity.
However, the yen has been weakening since a joint intervention in July, erasing half of its gains after a 40-year low against the dollar. This change in risk profile affects FX traders' strategies and highlights the importance of policy mix in currency management.