AUD/USD Shorts at Risk Amid Growing Bets for RBA Rate Cut
- Reserve Bank of Australia (RBA) to Keep Cash Rate at 2.50% for 16-Consecutive Meetings.
- Will RBA Governor Glenn Stevens Restore the Easing Cycle?
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Trading the News: Reserve Bank of Australia (RBA) Interest Rate Decision
The near-term rebound in the AUD/USD may gather pace over the next 24-hours of trade should the Reserve Bank of Australia (RBA) continue to highlight a period of ‘interest rate stability’ in the $1T economy.
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Why Is This Event Important:
Despite growing speculation for a rate cut, RBA Governor Glenn Stevens may endorse a neutral tone for monetary policy, but the central bank head may continue to jawbone the Australian dollar in order to further assist with the rebalancing of the real economy.
Expectations: Bullish Argument/Scenario
|Consumer Price Index- Trimmed Mean (YoY) (4Q)||2.2%||2.2%|
|Employment Change (DEC)||5.0K||37.4K|
|Trade Balance (NOV)||-1600M||-925M|
Sticky inflation paired with the pickup in job growth may encourage the RBA to preserve its forward-guidance for monetary policy, and the aussie-dollar may continue to retrace the decline from the beginning of the year should Governor Steven talk down bets for a rate cut.
Risk: Bearish Argument/Scenario
|Retail Sales (MoM) (NOV)||0.2%||0.1%|
|Home Loans (MoM) (NOV)||1.7%||-0.7%|
|Gross Domestic Product s.a. (QoQ) (3Q)||0.7%||0.3%|
However, fears of a slower recovery may prompt the RBA to implement a more dovish twist to the forward-guidance, and the Australian dollar may face additional headwinds over the near-term should the central bank show a greater willingness to revert back to its easing cycle.
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How To Trade This Event Risk(Video)
Bullish AUD Trade: RBA Continues to Endorse Period of Interest Rate Stability
- Need green, five-minute candle following the rate decision 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 Sees Scope for Lower Borrowing-Costs
- 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
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- Long-term outlook remains bearish, but may see a larger rebound in AUD/USD as the Relative Strength Index (RSI) tries to come off of oversold territory.
- Interim Resistance: 0.8000 (50% retracement) to 0.8020 (100% expansion)
- Interim Support: 0.7680 (161.8% expansion) to 0.7720 (161.8% expansion)
Impact that RBA interest rate decision has had on AUD during the last meeting
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|DEC 2014||12/02/2014 03:30 GMT||2.5%||2.5%||+40||+27|
December 2014 Reserve Bank of Australia (RBA) Rate Decision
The Reserve Bank of Australia (RBA) kept the cash rate unchanged at the record low of 2.50% for another month as the current monetary policy stance remains ‘appropriate’ for sustainable economic growth. Even though RBA Governor Glenn Stevens continued to endorse a period of ‘interest rate stability’ for Australia, the central bank continued to jawbone the local currency as a lower exchange rate is needed for a more balanced recovery. Despite the move higher following the interest rate decision, the market reaction was short-lived as AUD/USD fell back from the session high of 0.8539 to end the day at 0.8506.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail firstname.lastname@example.org. Follow me on Twitter at @DavidJSong.
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