Emerging-market currency volatility at a one-year low is poised to sap demand for Asian foreign exchange in favor of its higher-yielding European and Latin American peers.
Falling volatility means there’s less prospect of earning capital gains from any currency appreciation, so traders are instead having to rely on potential returns from carry, which involves borrowing in countries with low interest rates and investing in others offering higher returns. The relatively meager rates in many Asian countries make their currencies unattractive as targets for such a trade, a Bloomberg analysis shows.
