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Less-hawkish Fed lifts USD, but commodity FX carry fails to catch on

BNY says flows turned back toward net selling in NOK, AUD, and EM currencies after the Fed decision, with higher nominal rates outweighed by growth and stagflation concerns.

Reported · Written up by our desk · Major Pairs

BNY’s Geoff Yu said a less hawkish Fed has weakened the US dollar, but has not sparked a sustained rally in commodity-linked FX, citing Norwegian Krone, Australian Dollar, and several emerging market currencies including Chilean Peso, South African Rand, and Brazilian Real. The note argues that while Australia and Norway retain among the highest nominal rates in G10, idiosyncratic risks and macro headwinds, including stagflation and productivity issues, have limited any meaningful front-end real-rate advantage versus the dollar. On the EM side, Yu said South Africa’s policy stance reflects a clear growth priority, helping explain why the “carry” trade has not resumed broadly. The newsletter also pointed to dollar hedging flows rising again, with the shift in positioning accelerating after payroll data and the Fed decision. BNY added that, excluding gold, there was no sign of a broad commodity move strong enough to revive the earlier “debasement” trade seen in January and February, and it cautioned investors not to chase the weaker-dollar commodity FX trade until flows confirm a wider growth recovery rather than only easier Fed expectations.

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