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AUD/USD Risks Fresh 2014 Highs on Less-Dovish RBA Policy Statement

AUD/USD Risks Fresh 2014 Highs on Less-Dovish RBA Policy Statement

2014-06-30 21:00:00
David Song, Strategist
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- 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

Even though the Reserve Bank of Australia (RBA) is widely expected to retain its current policy in July, the policy statement accompanying the interest rate decision may heavily impact the AUD/USD should the central bank alter its forward-guidance for monetary policy.

What’s Expected:

AUD/USD RBA

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Why Is This Event Important:

We may get more of the same from the RBA as Governor Glenn Stevens continues to see a period of interest rate ‘stability,’ but the central bank may toughen its verbal intervention on the Australia dollar as the resilience in the local currency undermines the outlook for growth and inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Private Sector Credit (MoM) (MAY)

0.4%

0.4%

Gross Domestic Product s.a. (QoQ) (1Q)

0.9%

1.1%

Company Operating Profits (QoQ) (1Q)

2.5%

3.1%

The pickup in private sector activity along with the ongoing expansion in private sector credit may encourage the RBA to adopt a more upbeat tone for the $1T economy, and the AUD/USD may continue to track higher in July should the central bank retain a neutral outlook for monetary policy..

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Employment Change (MAY)

10.0K

-4.8K

Retail Sales (MoM) (APR)

0.3%

0.2%

Consumer Price Index (YoY) (1Q)

3.2%

2.9%

However, the RBA may increase its effort to talk down the exchange rate as the central bank continues to highlight the persistent slack in the real economy, and the aussie-dollar may face a larger decline during the summer months should Governor Stevens ramp up the verbal intervention on the Australian dollar.

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How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Adopts Improved Outlook; Continues to See Interest Rate Stability

  • Need green, five-minute candle following the statement for a potential long AUD/USD trade
  • If market reaction favors a long aussie 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 Toughens Verbal Intervention

  • 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

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AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Appears to be stuck in an ascending triangle as bullish RSI momentum remains in play
  • 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)

JUN 2014

06/03/2014 4:30 GMT

2.50%

2.50%

+17

+11

June 2014 Reserve Bank of Australia Rate Decision

AUD/USD Chart

The RBA continued to strike a neutral tone for monetary policy as the central bank sees a period of interest rate ‘stability,’ but it seems as though market participants will continue to turn a blind-eye to the verbal intervention as Governor Glenn Stevens argues that the Australian dollar remains ‘high’ relative to the drop in commodity prices. As a result, the AUD/USD traded back above the 0.9250 following the rate decision, with the pair ending the day at 0.9262.

Read More:

COT Positioning is Extreme Across the Board

AUD/JPY Holds Support Ahead of RBA- GBP/USD Carving Higher-High?

--- 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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