DLBR - EUR/AUD Is Set To Move Higher As Inflation And Interest Rate Differentials Favor Strength

• EUR/AUD moved significantly higher in February and March 2020, on the back of largely mechanical moves, as capital was repatriated.
• More recently, the pair has been trading between circa 1.60 and 1.66, although most recently EUR appears to be breaking out versus AUD.
• While the real yield for EUR/AUD has technically worsened this year, I believe longer-term forces will favor lower EUR inflation and higher AUD inflation.
• Meanwhile, rates are likely to remain constant, although higher AUD inflation could even beget higher interest rates in Australia.
• As sentiment seems to have shifted this year in favor of the EUR, it appears that there is potential for a self-reinforcing move higher.

For further details see: