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An RBA Rate Cut Could Lead To The Formation Of A Technical Bottom.

Monday, 01 December 2008 23:17:24 GMT  |  John Rivera, Currency Analyst

The RBA is expected to cut their benchmark rate by 75 bps at their policy meeting as the Australian economy is heading toward a recession. There has been some speculation that the central bank has some concerns that if they lower interest rates too far that upside inflation risks will re-emerge.

 

Dec 02	RBA Rate Decision (GMT 03:30; 22:30 EDT)
	Expected:                     4.50%
	Previous:                     5.25%

 

Fundamental Outlook

The RBA is expected to cut their benchmark rate by 75 bps at their policy meeting as the Australian economy is heading toward a recession. There has been some speculation that the central bank has some concerns that if they lower interest rates too far that upside inflation risks will re-emerge. However, giving the steady drop in commodity prices and signs that China- one of the main consumers of raw materials- is showing signs of slowing, price pressures may be far away. Technical analysis is calling for one more leg lower before a move higher with a target above 0.7000. The rate reduction from the RBA could lead to a drop in the Australian dollar completing the leg lower. If the central bank follows with hawkish commentary then we could see the forecasted move higher after the bottom is put in place. However, if the MPC signals that more aggressive easing is in store or cuts deeper than expected, then a break of support at 0.6010 is a possibility.

Technical Outlook



There remains potential for a large recovery back to the mid .70s given the 5 wave drop from the top (waves a and b of an a-b-c correction would be close to complete).  Bulls may attempt to ‘pick’ this bottom given that the AUDUSD has held above the October low.

For More Technical Analysis Visit the Daily Technical Report

To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com

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