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LatAm carry trade conditions improve, but commodity links remain broken

BNY says easier Fed conditions and weaker US labor data have helped carry, though it cautions that lingering inflation risks and commodity correlation issues could cap momentum.

Reported · Written up by our desk · Major Pairs

BNY strategists Geoff Yu and David Tam said conditions for Latin American carry trades have improved, pointing to a more dovish Federal Reserve and weaker US labor data that together make the trade setup more favorable.

They also noted that while FX appears to be the first beneficiary of easier financial conditions, the strategy’s momentum is limited by broken correlations with commodities and persistent inflation risk, which they said could weigh on sustained performance.

In their view, carry returns may require more than financial easing, emphasizing that domestic reforms and improved productivity are needed to enhance real returns in LatAm economies.

The FXStreet commentary also flagged broader currency market dynamics, including investors weighing the outlook for US rates and Middle East developments that have supported the US dollar, alongside moves in major pairs and gold.

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