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AUD/USD Fails to Retain Bullish RSI Momentum Ahead of RBA Meeting

AUD/USD Fails to Retain Bullish RSI Momentum Ahead of RBA Meeting

David Song, Shuyang Ren,

- Reserve Bank of Australia (RBA) to Keep Cash Rate on Hold for Thirteen-Consecutive Months.

-Will Governor Glenn Stevens Continue to Implement the Verbal Intervention?

For more updates, sign up for David's e-mail distribution list.

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

Even though the Reserve Bank of Australia (RBA) is widely expected to keep the benchmark interest rate at 2.50% in November, the AUD/USD remains vulnerable to further losses as Governor Glenn Stevens retains the verbal intervention on the aussie.

What’s Expected:

AUD/USD RBA

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Why Is This Event Important:

Indeed, the central bank head may even take a more aggressive approach in jawboning the local currency amid the slowing recovery in China – Australia’s largest trading partner – and we may see renewed bets for additional monetary support on the back drop of the weakening outlook for global growth.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index- Trimmed Mean (YoY) (3Q)

2.7%

2.5%

Employment Change (SEP)

15.5K

-29.7K

Retail Sales (MoM) (AUG)

0.4%

0.1%

The persistent slack surrounding the region may push the RBA to adopt a more dovish tone for monetary policy, and the AUD/USD may mark fresh lows over the near-term should the RBA toughen the verbal intervention to further assist with the rebalancing of the real economy.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Private Sector Credit (YoY) (SEP)

5.3%

5.4%

AiG Performance of Construction Index (SEP)

--

59.1

Gross Domestic Product s.a. (QoQ) (2Q)

0.4%

0.5%

However, we may get more of the same from Governor Stevens as the central bank head remains confident in achieving a sustainable recovery, and the AUD/USD may continue to face range-bound prices if the RBA shows a greater willingness to normalize monetary policy in the year ahead.

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How To Trade This Event Risk(Video)

Bearish AUD Trade: RBA Continues to Embark on Verbal Intervention

  • Need red, five-minute candle following a dovish statement for a potential short AUD/USD trade
  • If market reaction favors a short aussie trade, sell AUD/USD 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 Drops Dovish Tone

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

Read More:

Price & Time: Where To Next For USD/JPY?

Monetary Policy on Trial with RBA, ECB, and NFPs this Week

Potential Price Targets For The Release

AUD/USD Daily Chart

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Downside targets favored for AUD/USD as it fails to retain the series of higher-lows; bearish break in RSI favors ‘selling bounces.’
  • Interim Resistance: 0.8840 (23.6% retracement) to 0.8865 (61.8% expansion)
  • Interim Support: 0.8600 pivot to 0.8610 (38.2% expansion)

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)

OCT 2014

10/07/2014 3:30 GMT

2.50%

2.50%

-2

+44

October 2014 Reserve Bank of Australia (RBA) Rate Decision

AUD/USD Daily Chart

The Reserve Bank of Australia (RBA) stuck to its current policy and left the target cash rate at the historical low for another month, but went onto say that the Australian dollar remains high relative to the decline in commodity prices as the central bank continues to see a period of interest rate stability in the $1T economy. Despite the verbal intervention, the AUD/USD traded above the 0.8800 handle following the rate decision, but struggled to hold its ground throughout the day as the pair closed at 0.8793.

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

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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