U.S. May Welcome Carry Trades, Credit Suisse Says

By Shigeki Nozawa

Sept. 16 (Bloomberg) -- The U.S. may “welcome” carry trades in dollars as returns overseas flow back to American investors, Credit Suisse Group AG said.

High returns generated in other countries will help the dollar maintain its status as the world’s reserve currency, even as the greenback weakens, said Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo.

“A weak dollar should be welcomed, since it signals a recovery in the global economy and financial markets,” Shirakawa said by telephone today. “The U.S. will likely welcome dollar carry trades.”

In a carry trade, investors borrow in nations where interest rates are low and buy assets where returns are higher, profiting from the difference. Benchmark interest rates are as low as zero in the U.S. compared with 3 percent in Australia and 2.5 percent in New Zealand.

The U.S. has been seeing a surplus in the income balance, a portion of the current-account balance that shows investment returns, even after it became a debtor nation in 1986, according to Shirakawa.

“U.S. investors are generating returns from overseas assets that more than offset payments of external debt,” the economist said. “Their performance is just amazing.”

The Dollar Index fell to the lowest in almost a year after a Commerce Department report showed U.S. retail sales increased 2.7 percent last month following a revised 0.2 percent drop in July, adding to signs the recession is ending.

The Dollar Index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, declined to as low as 76.244, the weakest since Sept. 22, 2008, from 76.520 yesterday.

Japan’s government may increase purchases of Treasuries if policy coordination with the U.S. is needed to stem the dollar’s decline, Shirakawa said.

To contact the reporter on this story: Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net.