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AUD/USD Vulnerable to RBA Verbal Intervention- 0.8550 on Tap?

AUD/USD Vulnerable to RBA Verbal Intervention- 0.8550 on Tap?

2014-10-06 21:00:00
David Song, Shuyang Ren,
Share:

- Reserve Bank of Australia (RBA) to Keep Cash Rate at 2.50% for 13-Consecutive Meetings.

- Will RBA Governor Glenn Stevens Continue to Embark on Verbal Intervention?

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Trading the News: Reserve Bank of Australia (RBA) Interest Rate Decision

The near-term rebound in the AUD/USD may be short-lived should the Reserve Bank of Australia (RBA) retain the verbal intervention on the higher-yielding currency.

What’s Expected:

AUD/USD RBA

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the RBA is widely expected to retain a period of ‘interest rate stability,’ Governor Glenn Stevens may continue to jawbone the Australian dollar in an effort to mitigate the downside risk surrounding the $1T economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

HIA New Home Sales (MoM) (AUG)

--

3.3%

Building Approvals (MoM) (AUG)

1.0%

3.0%

Trade Balance (AUG)

-800M

-787M

The narrowing trade deficit along with the ongoing expansion in building activity may encourage the RBA to drop the verbal intervention on the Australia dollar, and the fresh batch of central bank rhetoric may generate a more meaningful correction in the AUD/USD should Governor Stevens show a greater willingness to move away from the easing cycle.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

AiG Performance of Services Index (SEP)

--

45.4

Retail Sales (MoM) (AUG)

0.4%

0.1%

AiG Performance of Manufacturing Index (SEP)

--

46.5

However, the slowdown in private sector consumption paired with the persistent slack in business outputs may push the RBA to adopt a more cautious tone for the region, and the AUD/USD may face a further decline should the central bank continue to highlight the slack in the real economy.

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How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Continues to Highlight Period of Interest Rate Stability

  • Need green, five-minute candle following the report 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 Continues to Embark on 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 reverse

Read More:

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Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily

Chart - Created Using FXCM Marketscope 2.0

  • Long-Term Outlook Remains Bearish as the RSI Preserves the Downward Trend From April
  • Interim Resistance: 0.9110 (61.8% retracement) to 0.9140 (38.2% retracement)
  • Interim Support: 0.8525 (50.0% expansion) to 0.8540 (50.0% retracement)

Impact that RBA interest rate decision has had on AUD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

SEP 2014

09/02/2014 4:30 GMT

2.5%

2.5%

-2

0

September 2014 Reserve Bank of Australia (RBA) Rate Decision

AUD/USD Chart

The Reserve Bank of Australia (RBA) kept the cash rate on hold at a record low of 0.25% for the 12-consective month as the central bank deems the current monetary policy ‘appropriate’ to support future economy growth. Governor Glenn Stevens reiterated that RBA would likely retain the neutral stance for a period of time in an effort to further assist with the rebalancing of the $1T economy. The neutral tone sparked a limited reaction in the Australia Dollar, with the AUD/USD consolidating below the 0.9300 handle and ending the day at 0.9297.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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