The US dollar is flexing again, and emerging-market traders are doing what they always do when the greenback gets expensive: they’re looking for cheaper ways to borrow.
Traders operating in developing-country currencies are increasingly turning to euros and Australian dollars as funding currencies for their positions, a shift driven by the USD’s climb to its strongest levels in over a year. The US Dollar Index (DXY) pushed to approximately 101 in late June 2026, its highest reading in 13 months, making dollar-funded carry trades progressively more painful for anyone betting on higher-yielding EM assets.
The carry trade gets a new wardrobe
Geopolitical tensions, particularly surrounding the Middle East, combined with shifting expectations around Federal Reserve interest rate policy, have turned the USD into a wrecking ball for anyone on the wrong side of the trade.
The Australian dollar, which was trading near a two-month low at around 70.5 US cents in early June 2026 amid concerns about Chinese demand, offers appeal as a cheaper funding source.
