Emerging-market traders shift to euro and Australian dollar as US dollar strengthens

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.

Why the AUD makes historical sense, and why the EUR is newer territory

The Australian dollar has long been a familiar player in carry-trade dynamics. Historical survey data shows the AUD frequently appearing in carry trades involving EM currencies, though typically as a recipient currency rather than a funder. Its current weakness, driven by softening Chinese economic indicators and commodity demand concerns, has flipped the script somewhat.

The euro’s role here is more novel. EUR-funded carry trades into emerging markets represent a less conventional strategy, and the evidence for a broad-based shift in this direction remains mixed. As of July 5, 2026, there are no specific external confirmations of the EUR/AUD funding shift in emerging-market trading.

What this means for crypto and broader markets

The renewed strength of the USD creates a complex environment for risk assets across the board. A stronger dollar historically pressures everything from EM equities to commodities to Bitcoin. When global liquidity contracts, which is effectively what a stronger dollar signals, speculative positions get unwound.

But there’s a catch. The AUD’s own vulnerability to Chinese economic conditions means it’s not exactly a rock-solid funding currency. If Chinese demand deteriorates further, the AUD could weaken beyond what’s useful for carry trades, potentially forcing another rotation back toward dollar funding at even worse rates.

For crypto-native investors, the practical takeaway is this: watch the DXY. At 101, it’s already applying meaningful pressure to risk assets globally.

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