According to a report by Australia & New Zealand Banking Group (ANZ), high currency volatility is making carry trades less appealing in emerging Asia, despite rising returns. The implied yields for seven emerging-Asian currencies recently reached 1.36%, the highest level in nearly four years, driven partly by elevated oil prices. However, a JPMorgan Chase & Co. index indicated that emerging-market foreign exchange volatility hit its highest point in almost a year, complicating the carry trade strategy. Khoon Goh, head of Asia research at ANZ, noted that while higher implied yields suggest potential central bank rate hikes, geopolitical uncertainties can negate yield advantages. Countries like South Korea, Thailand, and the Philippines are particularly vulnerable to rising oil prices due to ongoing tensions in the Strait of Hormuz. As a result, South Korean won swaps are pricing in three quarter-point rate hikes over the next year, while Thailand and the Philippines are also anticipating rate increases. Analysts recommend focusing on currencies with better fundamentals, such as the Chinese yuan, Singapore dollar, Malaysian ringgit, and Hong Kong dollar.