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AUDUSD Rebound Threatened by Verbal RBA Intervention

AUDUSD Rebound Threatened by Verbal RBA Intervention

David Song, Strategist

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

- Governor Glenn Stevens to Step Up Verbal Intervention?

Trading the News: Reserve Bank of Australia Interest Rate Decision

The Reserve Bank of Australia widely expected to retain its current policy in November, and the rate decision may prop up the Australian dollar as the central bank appears to be moving away from its easing cycle.

What’s Expected:

Time of release: 11/05/2013 3:30 GMT, 22:30 EST

Primary Pair Impact: AUDUSD

Expected: 2.50%

Previous: 2.50%

DailyFX Forecast: 2.50%

Why Is This Event Important:

However, Governor Glenn Stevens may take a more stern approach in talking down the local currency to further assist with the rebalancing of the real economy, and stronger verbal intervention may limit the upside for the AUDUSD as market participants weigh the outlook for monetary policy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Retail Sales ex Inflation (QoQ) (3Q)

0.2%

0.7%

Building Approvals (YoY) (SEP)

1.2%

18.6%

Consumer Price Index (YoY) (3Q)

1.8%

2.2%

Threats of an asset bubble may prompt the RBA to adopt a more hawkish tone for monetary policy, and the rate decision may fuel a more meaningful rebound in the AUDUSD should the central bank talk down bets for more easing.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

ANZ Job Advertisements (MoM) (OCT)

--

-0.1%

Employment Change (SEP)

15.0K

9.1K

Trade Balance (AUG)

-400M

-815M

Nevertheless, the ongoing slack in the real economy along with the weakening outlook for global trade may encourage the RBA to further embark on its easing cycle, and the Australian dollar may struggle to maintain the advance from September should the central bank show a greater willingness to implement another rate cut.

How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Retains Current Policy & Highlights Risk for Asset Bubble

  • 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 Adopts More Dovish Tone

  • 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

AUDUSD Daily

Forex_AUDUSD_Rebound_Threatened_by_Verbal_RBA_Intervention_body_ScreenShot313.jpg, AUDUSD Rebound Threatened by Verbal RBA Intervention

Chart - Created Using FXCM Marketscope 2.0

  • Retains Range Ahead of RBA; Higher Low in Place?
  • Preserves Bullish Relative Strength Index Momentum
  • Interim Resistance: 0.9500 (38.2 retracement) to 0.9520 (38.2 expansion)
  • Interim Support: 0.9420-30 (23.6 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)

OCT 2013

10/01/2013 0:30 GMT

2.50%

2.50%

+58

+60

October 2013 Reserve Bank of Australia Rate Decision

Forex_AUDUSD_Rebound_Threatened_by_Verbal_RBA_Intervention_body_ScreenShot312.png, AUDUSD Rebound Threatened by Verbal RBA Intervention

The Reserve Bank of Australia continued to strike a neutral tone for monetary policy after keeping the cash rate at 2.50%, but went onto say that ‘a lower level of the currency than seen at present would assist in rebalancing growth in the economy’ as the region continues to face an uneven recovery. Nevertheless, the Australian dollar traded higher following the rate decision, with the AUDUSD climbing above the 0.9350 region, and the higher-yielding currency continued to gain ground throughout the day as the pair closed at 0.9395.

--- 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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