The carry trade

Woolfolk notes the Canadian dollar has been surging against the Japanese yen as well as the greenback. The loony gained 15.1 percent vs. the yen over the last two-anda- half months, he says. Global money managers are borrowing the yen and buying the Canadian dollar in a yen carry trade, which has pushed the Canada/yen (CAD/JPY) rate to a 15-year high of 112.50, Coleman says. He called the move in CAD/JPY an “amazing trend,” pointing to the rally from 97.50 in March to the 112.50 area in early June.
With Canadian rates at 4.25 percent vs.

Japan’s 0.50 percent rate, this play has picked up steam in recent months. “CAD/JPY should be followed closely as it may prove to be a good proxy for the health of the Japanese carry trade,” says Woolfolk. “Looking forward, minimal technical resistance comes in at 114.00, the April 1992 high, after which the next major level is 117.25, the channel top of the current uptrend in place since 1995.”