EURAUD1. 10-Year Bond Yields and Interest Rate Differentials
Eurozone 10-Year Yield: ~3.2% (stable amid ECB’s cautious rate policy).
Australia 10-Year Yield: ~4.1% (higher due to RBA’s inflation focus).
Yield Spread:
4.1% (AUD)−3.2% (EUR)=+0.9%
Australia’s yield advantage supports AUD through carry trades.
Policy Rate Differential:
ECB Rate: 3.75% (cut by 25bps in June 2025).
RBA Rate: 4.35% (unchanged since late 2024).
Spread: +0.6% favoring AUD.
2. Carry Trade and Uncovered Interest Rate Parity (UIP)
Carry Trade Bias: Investors borrow EUR (lower rate) to invest in AUD (higher rate), supporting AUD demand.
UIP Implications: According to UIP, AUD should depreciate to offset its yield advantage. However, persistent AUD strength (e.g., EUR/AUD near 1.75–1.77) suggests deviations due to risk appetite and commodity-driven AUD demand.
3. Upcoming Economic Data (June 1–5)
Date Event Currency Impact
June 2 Eurozone CPI (May) Higher inflation (>2.5%) could delay ECB cuts, boosting EUR.
June 3 AU Retail Sales (Apr) Strong sales (>0.5% MoM) may lift AUD.
June 4 Eurozone Unemployment Rate Rise above 6.5% pressures EUR.
June 5 AU Trade Balance (Apr) Surplus (>A$10B) supports AUD via export optimism.
Bearish Catalysts:
Wider AU-EU yield spreads and RBA’s hawkish stance.
Strong AU data (retail sales, trade balance).
Bullish Catalysts:
ECB inflation surprises or delayed rate cuts.
Risk-off sentiment weakening AUD (commodity-linked).
Summary Table
Factor Eurozone (EUR) Australia (AUD)
10-Year Yield 3.2% 4.1%
Policy Rate 3.75% 4.35%
Yield Spread +0.9% (AUD over EUR) —
Key Data CPI, Unemployment Retail Sales, Trade Balance
Carry Trade Bias Neutral-to-Bearish for EUR Bullish for AUD
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