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AUD/USD- Trading the Reserve Bank of Australia (RBA) Decision

AUD/USD- Trading the Reserve Bank of Australia (RBA) Decision

2013-04-01 19:00:00
David Song, Strategist
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Trading the News: Reserve Bank of Australia Interest Rate Decision

What’s Expected:

Time of release: 04/02/2013 3:30 GMT, 23:30 EDT

Primary Pair Impact: AUDUSD

Expected: 3.00%

Previous: 3.00%

DailyFX Forecast: 3.00%

Why Is This Event Important:

A Bloomberg News survey shows all of the 28 economists polled anticipate the Reserve Bank of Australia (RBA) keeping the benchmark interest rate at 3.00%, and the neutral policy stance may spark a bullish reaction in the Australian dollar as market participants scale back bets for a rate cut. However, Governor Glenn Stevens may keep the door open to ease policy further amid the uneven recovery in the $1T economy, and the higher-yielding currency may come under pressure should the central bank head continue to embark on the easing cycle.

Recent Economic Developments

The Upside

Release

Expected

Actual

Employment Change (FEB)

10.0K

71.5K

Consumer Inflation Expectations (MAR)

--

2.3%

Retail Sales s.a. (MoM) (JAN)

0.4%

0.9%

The Downside

Release

Expected

Actual

Private Sector Credit (YoY) (FEB)

3.5%

3.4%

Home Loans (MoM) (JAN)

0.5%

-1.5%

Trade Balance (JAN)

-500M

-1057M

The sharp pickup in employment along with the rebound in household spending may prompt the RBA to scale back its dovish tone for monetary policy, and the central bank may start to endorse a neutral policy stance amid the pickup in private sector activity. However, weakening trade conditions paired with the persistent slack in the real economy may encourage Governor Stevens to push the benchmark interest rate to a fresh record-low, and the central bank may continue to carry out the easing cycle in 2013 as the outlook for growth and inflation remains weak.

Potential Price Targets For The Rate Decision

Forex_AUDUSD-_Trading_the_Reserve_Bank_of_Australian_RBA_Decision_body_ScreenShot116.png, AUD/USD- Trading the Reserve Bank of Australia (RBA) Decision

As the AUDUSD struggles to push back above the 61.8% Fibonacci retracement from the 2011 high to low around 1.0430, we should see the pair hold steady ahead of the RBA, but we will maintain a bearish outlook for the aussie-dollar as long as it maintains the downward trend dating back to 2011. With the relative strength index capped by the 67 figure, the pair may face limited advances over the near to medium-term, and the AUDUSD may continue to give back the rebound from 2012 (0.9580) as it appears to have carved out a lower top just ahead of the 1.0500 region.

How To Trade This Event Risk

Trading the given event risk may not be as clear cut as some of our previous trades as the RBA keeps the cash rate on hold, but a less-dovish statement accompanying the rate decision could set the stage for a long Australian dollar trade as it dampens speculation for another rate cut. Therefore, if Governor Stevens sounds more upbeat this time around, we will need to see a green, five-minute candle following the decision to generate a long entry on two-lots of AUDUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to preserve our profits.

On the other hand, the ongoing slack in private sector activity paired with the downturn in global trade may continue to dampen the outlook for the $1T economy, and Governor Stevens may show a greater willingness to cut the interest rate further in an effort to stem the downside risks surrounding the region. As a result, if the RBA unexpectedly announces a 25bp rate cut or hints at lower borrowing costs, we will implement the same strategy for a short aussie-dollar as the long position mentioned above, just in the opposite direction.

Impact that the RBA Interest Rate Decision 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 2012

03/05/2013 3:30 GMT

3.00%

3.00%

+23

+43

March 2013 Reserve Bank of Australia Interest Rate Decision

Forex_AUDUSD-_Trading_the_Reserve_Bank_of_Australian_RBA_Decision_body_ScreenShot115.png, AUD/USD- Trading the Reserve Bank of Australia (RBA) Decision

The Reserve Bank of Australia kept the benchmark interest rate at 3.00%, with Governor Glenn Stevens noting that the current policy remains appropriate, but the central bank continued to see ‘scope to ease policy further’ as growth and inflation remain weak. Nevertheless, as the AUDUSD tracked higher as market participants scaled back bets for a rate cut, and the aussie gained ground throughout the day as the pair closed at 1.0255.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

Follow me on Twitter at @DavidJSong

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