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An interest rate differential is a difference in interest rate between two currencies in a pair.

It is not clear from the internet articles such as the one below which maturity length should be used for the interest rates in calculating the differential.

https://www.thebalance.com/what-is-an-interest-rate-differential-1344962

Let us use AUDUSD as an example. A person buys an AUDUSD currency futures contract that will expire in 1 month. Should we use 10-year, 1-year, 1-month government bond of the respective country to compute interest rate differential? Suppose we use 1-month government bond. What if 1-month government bond is available for U.S but not available for Australia?

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    $\begingroup$ How about the overnight rate? $\endgroup$
    – Jared Marks
    Sep 12, 2018 at 22:19
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    $\begingroup$ For a one month future or forward it should be the 1 month risk free rate in both countries. How that is actually implemented may differ from one country to another. The question is: if a bank wants to place a large sum for 1 month at low risk what kind of rate can they get. $\endgroup$
    – Alex C
    Sep 14, 2018 at 2:07

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I would use the one month interbanking rates (Libor for US). This is to be consistent with interest rate swaps.

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