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AUD/USD to Target Fresh Highs on Upbeat RBA- Former Support in Focus

By , Currency Analyst  and Gregory Marks
31 March 2014 23:00 GMT

- Reserve Bank of Australia (RBA) to Keep Benchmark Rate at 2.50%

- RBA to Retain Current Policy for the Sixth Consecutive Meeting

Trading the News: Reserve Bank of Australia Interest Rate Decision

The Reserve Bank of Australia (RBA) interest rate decision may generate a key topside break in the AUD/USD should the central bank adopts a more upbeat tone for the $1T economy.

What’s Expected:

Forex-AUDUSD-to-Target-Fresh-Highs-on-Upbeat-RBA-Former-Support-in-Focus_body_ScreenShot010.png, AUD/USD to Target Fresh Highs on Upbeat RBA- Former Support in Focus

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Why Is This Event Important:

Indeed, fresh comments from RBA Governor Glenn Stevens may push the AUDUSD above former support (0.9290) as the pair maintains the bullish trend from earlier this year, but we may see the central bank head toughen the verbal intervention on the higher-yielding currency in an effort to further assist with the rebalancing of the real economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Employment Change (DEC)

15.0K

47.3K

Retail Sales (MoM) (JAN)

0.4%

1.2%

Gross Domestic Product s.a. (QoQ) (4Q)

0.7%

0.8%

The recent pickup in job growth along with the ongoing expansion in private sector consumption may prompt the RBA to move away from its easing cycle, and the AUDUSD may continue to retrace the decline from back in October should the central bank layout a more detailed exit strategy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Westpac Leading Index (MoM) (FEB)

--

-0.1%

Consumer Inflation Expectation (MAR)

--

2.1%

Home Loans (MoM) (JAN)

0.5%

0.0%

Nevertheless, the RBA may take a more aggressive approach in talking down the Australian dollar as Governor Stevens prefers the exchange rate closer to the 0.8500 handle, and a marked decline in the AUDUSD may highlight a lower high in the longer-term series should the pair fail to maintain the upward trending channel from earlier this year.

How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Retains Current Policy & Sounds More Upbeat

  • Need green, five-minute candle following the statement for a potential long Australian dollar trade
  • If market reaction favors a long trade, buy AUDUSD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit

Bearish AUD Trade: Governor Stevens Strengthens Verbal Intervention

  • Need red, five-minute candle to consider a short AUDUSD position
  • Carry out the same setup as the bullish AUD trade, just in the opposite direction

Potential Price Targets For The Release

Join DailyFX on Demand to Cover Current Australian dollar Trade Setups

AUDUSD Daily

Forex-AUDUSD-to-Target-Fresh-Highs-on-Upbeat-RBA-Former-Support-in-Focus_body_Picture_2.png, AUD/USD to Target Fresh Highs on Upbeat RBA- Former Support in Focus

Chart - Created Using FXCM Marketscope 2.0

  • Remains Limited by Former Support & RSI Stalls at 70; High in Place?
  • Interim Resistance: 0.9270 (78.6% expansion) to 0.9290 Pivot
  • Interim Support: 0.8980 (38.2% expansion) to 0.8990 Pivot

Impact that Reserve Bank of Australia has had on AUD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR 2014

03/04/2013 3:30 GMT

2.50%

2.50%

-17

+7

March 2014 Reserve Bank of Australia Rate Decision

Forex-AUDUSD-to-Target-Fresh-Highs-on-Upbeat-RBA-Former-Support-in-Focus_body_Picture_1.png, AUD/USD to Target Fresh Highs on Upbeat RBA- Former Support in Focus

At last month’s Reserve Bank of Australia rate decision we saw the central bank keep rates unchanged and the Aussi saw a relatively tight, yet violent range at the release. The RBA reiterated comments that it sees a period of interest rate stability as well as consistent inflation targets over the next two years. The decline in the exchange rate of the Australian Dollar was noted as a factor that assisted in balanced growth and that EM conditions were more challenging than this time last year. For historical standards, it was noted that the FX rate was still high. In comments last week, RBA’s Stevens seemed to parse his words when asked about the current Aussi rate. It is likely that recent inflation data above 2.5% has sparked recent RBA silence and a rate cut would be highly unexpected in that context.

Read More:

EUR/AUD, EUR/USD Rebounds May Offer Selling Opportunities

Economic Calendar News - Eurozone CPI, ECB Press Conference and NFPs

--- Written by David Song, Currency Analyst and Gregory Marks

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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31 March 2014 23:00 GMT