AUD/USD Support at Risk on Dovish RBA, Toughened Verbal Intervention
- Reserve Bank of Australia (RBA) to Hold Benchmark Interest Rate to 2.00%.
- Will Governor Glenn Stevens Toughen the Verbal Intervention on the Australian Dollar?
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Trading the News: Reserve Bank of Australia Interest Rate Decision
According to a Bloomberg News survey, all of the 29 economists polled forecast the Reserve Bank of Australia (RBA) to keep the cash rate on hold at 2.00%, but the policy statement may drag on AUD/USD as the central bank keeps the door open to further embark on its easing cycle.
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Why Is This Event Important:
The dovish outlook for monetary policy along with the ongoing verbal intervention on the Australia dollar certainly raises the risk of for a further decline in the exchange rate, and we may see Governor Glenn Stevens increase his efforts to further support the rebalancing of the real economy in order to encourage a stronger recovery.
Expectations: Bearish Argument/Scenario
|Private Capital Expenditure (1Q)||-2.2%||-4.4%|
|Retail Sales ex Inflation (QoQ) (1Q)||0.8%||0.7%|
|Trade Balance (MAR)||-1000B||-1322M|
The ongoing decline in business investments paired with slowing demand from home and abroad may encourage the RBA to adopt a more dovish tone, and the aussie remains at risk of facing additional headwinds over the near-term as the central bank sees scope to further reduce the cash rate if needed.
Risk: Bullish Argument/Scenario
|Company Operating Profits (QoQ) (1Q)||0.0%||0.2%|
|Consumer Inflation Expectation (MAY)||--||3.6%|
|Consumer Price Index- Trimmed Mean (YoY) (1Q)||2.2%||2.3%|
However, the RBA may retain its wait-and-see approach in June on the back of sticky price growth, and Governor Stevens may endorse a more neutral outlook for monetary policy as the pickup in inflation expectations limits the central bank’s scope to further support the real economy.
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How To Trade This Event Risk(Video)
Bearish AUD Trade: RBA Retains Dovish Tone & Toughens Verbal Intervention
- Need red, five-minute candle following the rate decision 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 Highlights Neutral Outlook
- Need green, five-minute candle to consider a long AUD/USD position.
- Carry out the same setup as the bearish aussie trade, just in the opposite direction.
Euro Bearish Outlook Mired by Greek Talks, Sticky CPI
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- Following the failed run at the January high (0.8294), AUD/USD remains at risk for a further decline amid the bearish formation in price & RSI.
- DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long AUD/USD since May 15, with the ratio approaching extremes as it climbs to +2.61.
- Interim Resistance: 0.7820 (38.2% retracement) to 0.7850 (61.8% expansion)
- Interim Support: 0.7570 (50% expansion) to 0.7590 (100% expansion)
Impact that the RBA Interest Rate decision has had on AUD during the last meeting
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|May 2015||05/05/2014 4:30 GMT||2.00%||2.00%||+66||+18|
May 2015 Reserve Bank of Australia (RBA) Interest Rate Decision
As expected, the Reserve Bank of Australia (RBA) cut the benchmark rate for a second time in 2015 to a fresh record-low of 2.00% in May, but largely refrained from laying out a new forward-guidance for monetary policy as the central bank retained the verbal intervention on the local currency. With that said, it seems as though the RBA will adopt a wait-and-see approach over the coming months as the rate cuts continue to work their way through the real economy. The initial market reaction to the rate cut was short-lived as the RBA scaled back its dovish forward-guidance for monetary policy, with AUDUSD quickly snapping back from the 0.7800 handle to end the Asia/Pacific trade at 0.7867.
--- 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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