- Reserve Bank of Australia (RBA) to Hold Benchmark Interest Rate to 2.00%.
- Will Governor Glenn Stevens Toughen the Verbal Intervention on the Australian Dollar?
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Trading the News: Reserve Bank of Australia Interest Rate Decision
According to a Bloomberg News survey, all of the 29 economists polled forecast the Reserve Bank of Australia (RBA) to keep the cash rate on hold at 2.00%, but the policy statement may drag on AUD/USD as the central bank keeps the door open to further embark on its easing cycle.
What’s Expected:
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Why Is This Event Important:
The dovish outlook for monetary policy along with the ongoing verbal intervention on the Australia dollar certainly raises the risk of for a further decline in the exchange rate, and we may see Governor Glenn Stevens increase his efforts to further support the rebalancing of the real economy in order to encourage a stronger recovery.
Expectations: Bearish Argument/Scenario
Release | Expected | Actual |
---|---|---|
Private Capital Expenditure (1Q) | -2.2% | -4.4% |
Retail Sales ex Inflation (QoQ) (1Q) | 0.8% | 0.7% |
Trade Balance (MAR) | -1000B | -1322M |
The ongoing decline in business investments paired with slowing demand from home and abroad may encourage the RBA to adopt a more dovish tone, and the aussie remains at risk of facing additional headwinds over the near-term as the central bank sees scope to further reduce the cash rate if needed.
Risk: Bullish Argument/Scenario
Release | Expected | Actual |
---|---|---|
Company Operating Profits (QoQ) (1Q) | 0.0% | 0.2% |
Consumer Inflation Expectation (MAY) | -- | 3.6% |
Consumer Price Index- Trimmed Mean (YoY) (1Q) | 2.2% | 2.3% |
However, the RBA may retain its wait-and-see approach in June on the back of sticky price growth, and Governor Stevens may endorse a more neutral outlook for monetary policy as the pickup in inflation expectations limits the central bank’s scope to further support the real economy.
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How To Trade This Event Risk(Video)
Bearish AUD Trade: RBA Retains Dovish Tone & Toughens Verbal Intervention
- Need red, five-minute candle following the rate decision for a potential short AUD/USD trade.
- If market reaction favors a bearish aussie trade, sell AUD/USD with two separate position.
- Set stop at the near-by swing high/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.
Bullish AUD Trade: Governor Stevens Highlights Neutral Outlook
- Need green, five-minute candle to consider a long AUD/USD position.
- Carry out the same setup as the bearish aussie trade, just in the opposite direction.
Read More:
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Potential Price Targets For The Release
AUD/USD Daily
Chart - Created Using FXCM Marketscope 2.0
- Following the failed run at the January high (0.8294), AUD/USD remains at risk for a further decline amid the bearish formation in price & RSI.
- DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long AUD/USD since May 15, with the ratio approaching extremes as it climbs to +2.61.
- Interim Resistance: 0.7820 (38.2% retracement) to 0.7850 (61.8% expansion)
- Interim Support: 0.7570 (50% expansion) to 0.7590 (100% expansion)
Impact that the RBA Interest Rate decision has had on AUD during the last meeting
Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
---|---|---|---|---|---|
May 2015 | 05/05/2014 4:30 GMT | 2.00% | 2.00% | +66 | +18 |
May 2015 Reserve Bank of Australia (RBA) Interest Rate Decision
As expected, the Reserve Bank of Australia (RBA) cut the benchmark rate for a second time in 2015 to a fresh record-low of 2.00% in May, but largely refrained from laying out a new forward-guidance for monetary policy as the central bank retained the verbal intervention on the local currency. With that said, it seems as though the RBA will adopt a wait-and-see approach over the coming months as the rate cuts continue to work their way through the real economy. The initial market reaction to the rate cut was short-lived as the RBA scaled back its dovish forward-guidance for monetary policy, with AUDUSD quickly snapping back from the 0.7800 handle to end the Asia/Pacific trade at 0.7867.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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