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AUD/USD Rebound Vulnerable to RBA Verbal Intervention

AUD/USD Rebound Vulnerable to RBA Verbal Intervention

2014-12-01 22:00:00
David Song, Shuyang Ren,
Share:

- Reserve Bank of Australia (RBA) to Keep Cash Rate at 2.50% for 15-Consecutive Meetings.

- Will RBA Governor Glenn Stevens Toughen the Verbal Intervention on Aussie?

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

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

The Reserve Bank of Australia’s (RBA) interest rate decision may prompt another near-term decline in AUD/USD should the central bank toughen the verbal intervention on the local currency.

What’s Expected:

AUD/USD RBA

Click Here for the DailyFX Calendar

Why Is This Event Important:

The slowdown in China – Australia’s largest trading partner – may become a growing concern for the RBA amid the weakening outlook for global trade, and Governor Glenn Stevens may implement a more aggressive approach to weaken the Australian dollar in an effort to further assist with the rebalancing of the real economy.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Construction Work Done (3Q)

-1.9%

-2.2%

Wage Price Index (YoY) (3Q)

2.6%

0.1%

Building Approvals (MoM) (SEP)

-1.0%

-11.0%

Subdued wage growth along with the ongoing deterioration in home affordability may push the RBA to adopt a more dovish tone for monetary policy, and AUD/USD may face another near-term decline should we see a growing number of central bank officials show a greater willingness to revert back to an easing cycle.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Company Operating Profit (QoQ) (3Q)

-1.3%

0.5%

Employment Change (OCT)

20.0K

24.1K

Retail Sales ex Inflation (QoQ) (3Q)

0.5%

1.0%

However, Governor Stevens may sound more upbeat this time around amid the pickup in job growth paired with the rebound in private consumption, and the AUD/USD may face a larger rebound over the next 24-hours of trade should the fresh batch of central bank rhetoric boost interest rate expectations.

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How To Trade This Event Risk(Video)

Bearish AUD Trade: RBA Favors Further Depreciation of Australian dollar

  • Need red, five-minute candle following the policy statement for a potential short AUD/USD trade
  • If market reaction favors a bearish 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 Softens Dovish Tone for Monetary Policy

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

Read More:

Central Banks in Focus this Week as RBA, ECB Meet, NFPs on Friday

EURUSD Falls on Better Than Expected ISM Manufacturing

Potential Price Targets For The Release

AUD/USD Daily Chart

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term approach favors selling-bounces as the bearish RSI momentum remains in play
  • Interim Resistance: 0.8710 (78.6% retracement) to 0.8730 (23.6% expansion)
  • Interim Support: 0.8390 (78.6% expansion) to 0.8410 (100% 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)

NOV 2014

11/04/2014 03:30 GMT

2.50%

2.50%

+25

+35

November 2014 Reserve Bank of Australia (RBA) Rate Decision

AUD/USD Chart

As expected, the Reserve Bank of Australia (RBA) kept the cash target rate at a record-low of 2.50% in November in an effort foster a stronger recovery. Indeed, Governor Glenn Stevens continued to highlight a neutral tone for monetary policy as the central bank head favors a period of interest rate stability, but the Australian dollar remains at risk for a further decline as the RBA argues that the local currency remains overvalued. Despite the initial push higher, there was limited follow-through behind the market reaction as AUD/USD ended the day at 0.8731.

--- 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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