Stock Market News | Market Trends -

Technically the very strategy of borrowing currencies from the country where interest rates are low and investing in assets in some other country where the interest rates are high , so as to profit from the interest rates’ spread, is called as the carry trade.

On Nov-16-2009, Ben Bernanke, Fed’s Chairman, told the markets to expect low interest rates for an extended period. This news helped other major currencies to gain strength against USD thus pushing USD to lower levels. So what does this mean to investors? Well..it means a lot.

Investors can borrow USD at near to zero interest rates (short-term rates) and sell them to buy some high earning assets elsewhere. You must be thinking then why is USD losing grounds against other major currencies. Well the fact is that even though there might be high demand for USD for borrowing purpose, investors have to sell the USD to purchase assets elsewhere thus providing downward pressure on the dollar. Hence caught in this classical trap, USD is weakening against other currencies like YN, AUD, EURO, GBP etc. At the same time, the weak USD is also helping global equity markets to trade in the green.

Moreover, as gold and oil are denominated in USD, purchasing these items has become cheaper, which is pushing the demand for gold and oil worldwide. This ultimately is spurting the prices of gold and oil with gold trading at the record level ($1144/ounce) as of Nov-18-2009.

Intraday Gold Chart: Nov-18-2009