On May 25 the U.S. dollar fell to a five-month low, a sign that fundamentals-not fear-maybe driving the currency markets. During normal times countries with higher interest rates, such as Australia, attract capital, causing their currencies to rise, and those with low interest rates, like Japan, lose capital, causing their currencies to fall. Traders profit from these fluctuations through a swap known as the carry trade. In this deal, they sell a low-interest currency (like the yen), which they expect to fall, and buy one with a higher yield (like the Aussie dollar). The more the gap between the currency rates widens, the more money traders make.
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