Carry Trade Strategy: Key Currencies & Risks

Understand the carry trade investment strategy, the currencies most often involved, and historical instances of significant losses or unwinds.

The top 3

Top 3 Currencies Most Favored for Carry Trades: The Japanese Yen (JPY) and Swiss Franc (CHF) are historically popular low-yield funding currencies, while the Australian Dollar (AUD), New Zealand Dollar (NZD), and US Dollar (USD) are frequently used as higher-yield investment currencies in carry trades.
Major Carry Trade Unwinds and Market Impacts: The rapid unwinding of the Japanese yen carry trade in August 2024 significantly impacted global markets, causing Japan's Nikkei Index to experience its largest daily fall in history. The 2008–2011 Icelandic financial crisis also had origins in the undisciplined use of the carry trade, leading to widespread loan defaults.
Countries with Highest Interest Rate Differentials for Carry Trades: Countries like Brazil, Russia, India, and China (BRIC nations) have historically offered attractive interest rate differentials for carry traders due to their higher interest rates compared to low-rate economies such as Japan and the United States. As of July 2026, countries like Turkey (37%), Argentina (29%), and Brazil (14.25%) show significantly higher interest rates compared to Japan (1%) and Switzerland (0%).