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BNY's Geoff Yu reports that the iFlow Carry indicator has turned negatively significant for the first time in 2026, signaling ongoing unwinding of carry trades. This metric, which tracks the flow of capital into high-yield currency positions, suggests that investors are reducing exposure to leveraged trades amid shifting market conditions. The unwinding reflects concerns over tightening monetary policy and reduced risk appetite, particularly in AUD/USD, NZD/USD, and USD/JPY pairs. However, the report highlights a potential contrarian opportunity if the trend reverses, as historically, such unwinds have often preceded a rebound in carry trade activity.
For forex traders, the iFlow Carry's negative reading underscores increased volatility in carry trade-related pairs. Central banks' policy decisions, especially from the Fed and BoE, will be critical in determining whether the unwinding continues or reverses. Carry trades are sensitive to interest rate differentials, so any divergence in monetary policy could amplify market movements. Traders should monitor the iFlow Carry's trajectory and key central bank meetings for directional clues.
The implications for global markets hinge on whether the current unwinding is a temporary correction or a structural shift. If the iFlow Carry stabilizes or turns positive, it could signal renewed confidence in carry trades. Gulf investors, who often engage in forex strategies, should watch for policy signals from major central banks and assess risk-rebalance opportunities in high-yield currency pairs. The next critical data points will be Q4 2026 inflation reports and central bank rate decisions.
