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.