Guest Commentary: Is the Carry Trade Back? NZD/JPY is the winner of 2012

The biggest mover of 2012 was NZD/JPY – a currency pair that was the classic carry trade before the financial crisis broke out, when New Zealand offered an interest rate of over 8%.

Kiwi/yen went from 59.80 to 71.58 during 2012: 1178 pips or 19.6%. Major pairs didn’t enjoy such big changes.

The success of this cross is mostly due to the fall of the yen towards the end of the year: USD/JPY rose 11.18% in 2012. NZD/USD rose by 6.33%.

The world’s most popular pair, EUR/USD suffered a big drop during 2012, falling just above 1.20, but eventually closed just a bit higher: 1.3173 contrary to 1.2948 at the end of 2011.

Also AUD/USD, which usually enjoys high volatility, ended the year only with a small gain against the greenback: 1.57%. GBP/USD enjoyed a 4.7% rise and the franc rose by 2.67%, marginally more than the rise of its twin, the euro.

Apart from the SNB peg for EUR/CHF, central banks certainly had a significant impact on the lower volatility seen in 2012. Interest rates remain at rock bottom levels in the US, UK and Switzerland. In the euro-zone and Canada, the interest rates are also capped by 1%. In Australia, rates fell and only in New Zealand, rates have remained stable at 2.5%.

After getting a temporary deal on the fiscal cliff, we might get a full one. This perhaps will release some growth potential all over the world, pushing interest rates higher, and volatility higher. But the road is still long.

Further reading: 50 Top Forex Twitter Accounts

By Yohay Elam, ForexCrunch

Would you like to see more third-party contributors on DailyFX? For questions and comments, please send them to research@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.