I just reviewed an interesting analysis on how the conflict in Iran is significantly moving the G10 currency markets, especially in carry trade strategies.

What’s happening is quite clear: traders betting against the yen and the Swiss franc are reaping profits. At the same time, long positions in the Australian dollar, the Norwegian krone, and the British pound continue to show good results. It makes sense if you think about it.

The Australian dollar and the Norwegian krone are already strong due to their nature as currencies of commodity-exporting countries, so the carry trade in these currencies benefits from the current context. With the pound, the market has started to anticipate that the Bank of England might raise interest rates, which attracts more interest in long positions.

But there are two factors putting pressure: the Swiss franc has weakened because the Swiss National Bank has threatened currency intervention, which is quite effective in discouraging short positions in that currency. On the other hand, the yen remains under pressure due to rising oil prices, which typically negatively affect currencies of energy-importing countries.

In summary, the G10 currency carry trade is quite dynamic right now. Geopolitics are playing a more significant role than usual, moving flows between higher and lower-yielding currencies. An interesting time to stay alert to these movements.