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AUDUSD at Risk for Fresh Lows on Dovish Reserve Bank of Australia (RBA)

AUDUSD at Risk for Fresh Lows on Dovish Reserve Bank of Australia (RBA)

2014-02-03 22:00:00
David Song, Gregory Marks,
Share:

- Reserve Bank of Australia (RBA) to Hold Benchmark Rate at 2.50%

- RBA to Release Statement on Monetary Policy on February 6

Trading the News: Reserve Bank of Australia Interest Rate Decision

The Australian dollar may face fresh lows over the next 24-hours of trading should the Reserve Bank of Australia (RBA) adopt a more dovish tone for monetary policy.

What’s Expected:

Time of release: 02/04/2014 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:

RBA Governor Glenn Stevens may sound more cautious this time around as China – Australia’s largest trading partner – faces a slowing recovery, and the central bank may continue to carry out its easing cycle in 2014 in order to further assist with the rebalancing of the real economy.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Employment Change (DEC)

10.0K

-22.6K

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

--

-1.7%

Gross Domestic Product s.a. (QoQ) (3Q)

0.7%

0.6%

The persistent slack in the $1T economy may continue to dampen the outlook for growth and inflation, and a dovish policy statement may generate a lower low in the AUDUSD as it retains the bearish trend from back in 2011.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (4Q)

2.4%

2.7%

Home Loans (MoM) (NOV)

1.0%

1.1%

Retail Sales (MoM) (NOV)

0.4%

0.7%

Nevertheless, the RBA may highlight a more neutral tone for monetary policy amid the threat of an asset-bubble, and we may see a more meaningful rebound in the Australian dollar should the central bank talk down bets for more easing.

How To Trade This Event Risk(Video)

Bearish AUD Trade: RBA Sticks to Easing Cycle, Verbal Intervention

  • Need red, five-minute candle following the statement for a potential short Australian dollar trade
  • 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 Neutral Tone

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

Potential Price Targets For The Release

Join DailyFX on Demand to Cover Current AUDUSD Trade Setups

AUDUSD Daily

Forex_AUDUSD_at_Risk_for_Fresh_Lows_on_Dovish_Reserve_Bank_of_Australia_RBA_body_Picture_2.png, AUDUSD at Risk for Fresh Lows on Dovish Reserve Bank of Australia (RBA)

Chart - Created Using FXCM Marketscope 2.0

  • Price & RSI Retain Bearish Trend- Lower High at Former Support?
  • Interim Resistance: 0.8860 (61.8 expansion) to 0.8890 Pivot- Close Basis
  • Interim Support: 0.8670 (100.0 expansion) to 0.8710 (78.6 expansion)- Close Basis

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)

DEC 2013

12/03/2013 3:30 GMT

2.50%

2.50%

-12

+54

December 2013 Reserve Bank of Australia Rate Decision

Forex_AUDUSD_at_Risk_for_Fresh_Lows_on_Dovish_Reserve_Bank_of_Australia_RBA_body_Picture_1.png, AUDUSD at Risk for Fresh Lows on Dovish Reserve Bank of Australia (RBA)

In November we heard from RBA Gov. Stevens that the Aussi remains overvalued- possibly by as much as 10%- and that the central bank remains ‘open-minded’ in regards to intervention in the foreign exchange markets. This meeting will mark a critical moment for the Aussi, especially as AUD/USD remains just above some key technical support levels. Any further dovish hint from the Reserve Bank of Australia could be enough to tip AUD/USD below that support as risk off trends contribute to the pairs decline. Price action following the last RBA meeting in December was limited as traders waited for the third quarter GDP print at 00:30GMT. That reading indicated that the Australian economy grew at a rate of 0.6% QoQ vs. 0.7% estimated by economists. As this risk off environment continues, weak Aussi data and/or dovish RBA comments will be used as fuel for Aussi bears to continue selling.

--- 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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