Morgan Stanley targets EUR/AUD at 1.53, backs Aussie dollar carry trade

Morgan Stanley turned bearish on EUR/AUD, recommending selling the pair on expectations it falls to 1.53 from around 1.6295, with a stop at 1.69. The thesis is driven by a wide G10 rate differential favoring Australia after three RBA hikes in 2026 lifted the cash rate to 4.35%, versus only one ECB hike to 2.25%. The bank also argues that very low FX volatility supports carry trades into the Australian dollar, while markets may be overpricing further ECB tightening. If volatility stays subdued and ECB expectations soften, the euro could lose ground further against the Aussie dollar.