UBS says carry trade is still working and may go some way to explain the drop in volumes of late in currency markets. "If an investor had managed to get out early enough and stay in the black, with so much event risk concentrated into year end, it simply isn't worth the risking what has already been attained," says UBS, adding that dollar-based carry trades into the highest yielding currencies would have given investors an average of 6% total returns. "Assuming there are no fiscal-cliff related shocks in December (though that's still a big if), many investors will stress that the QE trade has worked," UBS says. Bank reckons AUD will continue to perform well due to absolute yields and the carry trade. AUD/USD now at 1.04.
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