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Trading Bearish AUDUSD Trend on Verbal RBA Intervention

Trading Bearish AUDUSD Trend on Verbal RBA Intervention

2013-10-01 00:30:00
David Song, Currency Strategist
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- Reserve Bank of Australia (RBA) to Retain Current Policy

- Governor Glenn Stevens to Implement Stronger Verbal Intervention?

Trading the News: Reserve Bank of Australia Interest Rate Decision

With the Reserve Bank of Australia widely expected to retain its wait-and-see approach in October, Governor Glenn Stevens may utilize stronger language to talk down the local currency in an effort to further assist with the rebalancing of the real economy.

What’s Expected:

Time of release: 10/01/2013 4:30 GMT, 0:30 EDT

Primary Pair Impact: AUDUSD

Expected: 2.50%

Previous: 2.50%

DailyFX Forecast: 2.50%

Why Is This Event Important:

The RBA may omit any comments referencing the cash rate as it relies on verbal intervention, but the fundamental outlook laid out by the central bank may sound more dovish amid the slowing recovery.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Employment Change (AUG)

10.0K

-10.8K

Trade Balance (JUL)

100M

-765M

Retail Sales (MoM) (JUL)

0.4%

0.1%

The renewed weakness in the labor market along with the deterioration in global trade may prompt the RBA to show a greater willingness to further embark on its easing cycle in order to combat the downside risks for growth and inflation.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Westpac Consumer Confidence s.a. (MoM) (SEP)

--

4.7%

Home Loans (MoM) (JUL)

2.0%

2.4%

Gross Domestic Product s.a. (QoQ) (2Q)

0.5%

0.6%

Nevertheless, the spillover effects of record-low borrowing costs may greater concerns of an asset bubble, and a more neutral tone for monetary policy may spark a more meaningful reaction in the AUDUSD as it deviates from market expectations.

How To Trade This Event Risk(Video)

Bearish AUD Trade: RBA Toughens Verbal Intervention; Sees Rate Cut Potential

  • Need to see red, five-minute candle following the statement for a potential short trade on AUDUSD
  • If market reaction favors a short trade, sell AUDUSD 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 Adopts More Neutral Tone

  • Need green, five-minute candle to consider a long AUDUSD trade
  • Carry out the same setup as the bearish AUD trade, just in the opposite direction

Potential Price Targets For The Release

AUDUSD Daily

Forex_Trading_Bearish_AUDUSD_Trend_on_Verbal_RBA_Intervention_body_Picture_2.png, Trading Bearish AUDUSD Trend on Verbal RBA Intervention

Chart - Created Using FXCM Marketscope 2.0

  • New Downward Trending Channel Taking Shape; Lower High in September
  • Interim Resistance: 0.9500 (38.2 retracement) to 0.9515 (1.618 expansion)
  • Interim Support: 0.9290 Pivot to 0.9270 (100.0 expansion)

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)

SEP 2013

09/03/2013 1:30 GMT

2.50%

2.50%

+53

+77

September 2013 Reserve Bank of Australia Rate Decision

Forex_Trading_Bearish_AUDUSD_Trend_on_Verbal_RBA_Intervention_body_ScreenShot162.png, Trading Bearish AUDUSD Trend on Verbal RBA Intervention

The RBA struck a more neutral tone for monetary policy, leaving out any reference to additional rate cuts for the foreseeable future, but continued their push with verbal intervention and reiterated that ‘it is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.’ Nevertheless, easing bets for lower borrowing costs propped up the Australian dollar, with the AUDUSD climbing above the 0.9000 handle, and the higher-yielding currency continued to gain ground throughout the day as it closed at 0.9059.

--- Written by David Song, Currency Analyst

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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