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AUD/USD Bearish Momentum Favored on Dovish RBA- 0.9200 Remains Key

AUD/USD Bearish Momentum Favored on Dovish RBA- 0.9200 Remains Key

2014-06-02 21:00:00
David Song, Strategist
Share:

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

- RBA to Preserve Current Policy for the Eighth Consecutive Meeting

Trading the News: Reserve Bank of Australia Interest Rate Decision

The Reserve Bank of Australia (RBA) is widely expected to keep the benchmark interest rate at 2.50% in June, but the AUD/USD may struggle to hold above the 0.9200 support zone should the central bank adopt a more dovish tone for monetary policy.

What’s Expected:

AUD/USD RBA

Click Here for the DailyFX Calendar

Why Is This Event Important:

Given the resilience in the Australian dollar, Governor Glenn Stevens may take a more aggressive approach in weakening the higher-yielding currency as market participants continue to ignore the verbal intervention, and the AUD/USD may face a more material decline over the next 24-hours of trading should the RBA favor additional tools to drive the exchange rate lower.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Private Sector Credit (MoM) (APR)

2.5K

18.1K

Construction Work Done (1Q)

-0.5%

0.3%

Employment Change (APR)

8.8K

14.2K

The threat of an asset-bubble paired with the ongoing improvement in the labor market may prompt the RBA to adopt a more upbeat tone for the $1T economy, and the AUD/USD may continue to build a near-term base around the 0.9200 support zone should the central bank highlight an improved outlook for growth and inflation.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Inventories s.a. (QoQ) (1Q)

-0.4%

-1.7%

Building Approvals (MoM) (APR)

2.0%

-5.6%

Retail Sales ex Inflation (QoQ) (1Q)

1.6%

1.2%

However, the RBA may sound more cautious this time around amid the persistent decline in inventories along with the slowdown in private sector consumption, and the AUD/USD may face a larger decline in June should Governor Stevens show a greater willingness to further embark on the easing cycle.

How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Keeps Current Policy & Sees Greater Scope for Rate Hike

  • Need green, five-minute candle following the statement for a potential long Australian dollar trade
  • If market reaction favors a long trade, buy AUD/USD 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 Dovish Tone

  • Need red, five-minute candle to consider a short AUD/USD position
  • Carry out the same setup as the bullish aussie trade, just in the opposite direction

Potential Price Targets For The Release

Join DailyFX on Demand to Cover Current Australian dollar Trade Setups

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Need Break & Close Below Support to Favor the Bearish RSI Momentum
  • Interim Resistance: 0.9460-70 (23.6 expansion)
  • Interim Support: 0.9200 (100.0 expansion) to 0.9220 (61.8 retracement)

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)

MAY 2014

05/06/2014 4:30 GMT

2.50%

2.50%

-4

+60

May 2014 Reserve Bank of Australia Rate Decision

AUD/USD Chart

As expected, the RBA stuck to its current policy in April as Governor Stevens continues to see a likely period of ‘interest-rate stability,’ while the central bank warned that the exchange rate remains high by historical standards amid the rebalancing of the real economy. Despite the limited market reaction to the interest rate decision, the AUD/USD pushed back above the 0.9300 during the European session, with the pair ending the day at 0.9340.

Read More:

COT Positioning of Interest in AUD, JPY, and MXN

June Forex Seasonality Sees US Dollar Outperformance versus Aussie, Euro

--- 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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