{"id":436409,"date":"2026-08-18T05:22:54","date_gmt":"2026-08-17T22:22:54","guid":{"rendered":"https:\/\/www.swingfish.trade\/blog\/market-news\/morgan-stanley-targets-eur-aud-at-1-53-backs-aussie-dollar-carry-trade-436409\/"},"modified":"2026-08-18T05:22:54","modified_gmt":"2026-08-17T22:22:54","slug":"morgan-stanley-targets-eur-aud-at-1-53-backs-aussie-dollar-carry-trade","status":"publish","type":"post","link":"https:\/\/www.swingfish.trade\/blog\/market-news\/morgan-stanley-targets-eur-aud-at-1-53-backs-aussie-dollar-carry-trade-436409\/","title":{"rendered":"Morgan Stanley targets EUR\/AUD at 1.53, backs Aussie dollar carry trade"},"content":{"rendered":"<div>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">The rate differential underpinning this call has widened materially over 2026, with the RBA delivering three 25 basis point hikes this year to take the cash rate to 4.35 per cent, against a single ECB move in June that lifted the deposit rate to 2.25 per cent after nearly three years on hold. That leaves a spread of roughly 210 basis points in the Australian dollar&#8217;s favour, among the widest in the G10, which Morgan Stanley says gives Australia the highest forward implied yields in the group. With implied volatility sitting near multi-month lows, the bank argues the setup favours <a href=\"https:\/\/investinglive.com\/technical-analysis\/the-audusd-runs-to-the-upside-and-back-into-a-swing-area-can-the-buyers-keep-the-momentum-going\/\" rel=\"follow\">carry flows into Australia over the near term<\/a>, a dynamic that tends to compress further in genuinely calm FX conditions but can unwind sharply if volatility resets higher. The trade also leans on a view that market pricing for further ECB tightening looks overdone, meaning any dovish repricing of the ECB path would add a second tailwind against the euro leg independent of the carry dynamic itself.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">&#8212;<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">\nMorgan Stanley is betting the widest rate gap in the G10 and unusually calm FX markets will keep pulling carry flows toward the Australian dollar and away from the euro.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">Summary:<\/p>\n<ul dir=\"ltr\" class=\"[li_&amp;]:mb-0 [li_&amp;]:mt-1 [li_&amp;]:gap-1 [&amp;:not(:last-child)_ul]:pb-1 [&amp;:not(:last-child)_ol]:pb-1 list-disc flex flex-col gap-1 pl-8 mb-3 print:block print:space-y-1\">\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">Morgan Stanley recommends selling the euro against the Australian dollar while FX volatility stays subdued<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">The bank targets EUR\/AUD falling to 1.53, with a stop loss at 1.69, from around 1.6295 currently<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">Forward implied Australian dollar yields are the highest in the G10, Morgan Stanley says, while implied volatility is very low<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">The RBA has delivered three 25 basis point hikes in 2026, taking the cash rate to 4.35 per cent, against a single ECB hike in June to 2.25 per cent<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">Morgan Stanley says the low volatility backdrop should keep attracting capital flows into Australia<\/li>\n<li class=\"font-claude-response-body whitespace-normal break-words pl-2\">The bank also sees scope for markets to lower implied ECB policy expectations, arguing current rate rise bets for the eurozone look overdone<\/li>\n<\/ul>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">\nMorgan Stanley is recommending clients sell the euro against the Australian dollar, targeting a fall to 1.53, with a stop loss set at 1.69, arguing the trade works best while foreign exchange volatility stays subdued. The call rests on one of the widest interest rate gaps in the G10, according to the bank&#8217;s analysts.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">The Reserve Bank of Australia has raised its cash rate three times in 2026, taking it to 4.35 per cent as it worked to contain inflation that has stayed persistently above target. The European Central Bank, by contrast, has moved only once this year, lifting its deposit rate by 25 basis points in June to 2.25 per cent, its first increase in nearly three years and a decision driven largely by the Iran war&#8217;s impact on eurozone energy costs and inflation. The resulting spread, roughly 210 basis points in the Australian dollar&#8217;s favour, leaves forward implied Australian dollar yields the highest in the G10, Morgan Stanley says.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">That yield advantage matters most in an environment of low implied volatility, which is exactly the backdrop the bank sees at present. Carry trades, where investors borrow in a low yielding currency to fund positions in a higher yielding one, depend on calm markets to work, since a volatility spike can quickly erase the yield pickup through currency moves alone. With implied volatility running very low across FX options markets, Morgan Stanley expects this to keep attracting capital flows into Australia, reinforcing the case for the trade so long as that calm persists.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">The euro side of the trade carries its own catalyst. Morgan Stanley argues markets are currently pricing in too much further ECB tightening, and that this view could shift lower as incoming data comes in. Should the implied ECB policy path move down, that would weigh on the euro independently of the carry dynamic, giving the trade a second source of downside beyond the yield differential alone. Together, the wide rate gap, calm volatility conditions, and the potential unwind of hawkish ECB pricing form the basis for Morgan Stanley&#8217;s view that the path of least resistance for EUR\/AUD is lower from here.<\/p>\n<p class=\"font-claude-response-body break-words whitespace-normal\" dir=\"ltr\">\n<p>                            This article was written by Eamonn Sheridan at investinglive.com.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The rate differential underpinning this call has widened materially over 2026, with the RBA delivering three 25 basis point hikes this year to take the cash rate to 4.35 per cent, against&hellip;<\/p>\n","protected":false},"author":216,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[86],"tags":[],"class_list":["post-436409","post","type-post","status-publish","format-standard","hentry","category-market-news"],"_links":{"self":[{"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/posts\/436409","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/users\/216"}],"replies":[{"embeddable":true,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/comments?post=436409"}],"version-history":[{"count":0,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/posts\/436409\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/media?parent=436409"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/categories?post=436409"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.swingfish.trade\/blog\/wp-json\/wp\/v2\/tags?post=436409"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}