Backwardation/Contango and Currencies

R

Reaver

I was wondering if anyone could help out with this...

I know that backwardation in a commodity can indicate a shortage or tightening supply....but when a currency future is in backwardation, what does this indicate?

Thanks.
 
The carry on FX futures is mainly a function of the relative interest rates between the two currencies.

US interest rates are > Japanese rates, so the yen futures are currently contango.

US interest rates are < mexican rates, so the peso futures are in backwardation.
 
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