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AUD/USD Range Vulnerable to Dovish RBA, Toughened Verbal Intervention

AUD/USD Range Vulnerable to Dovish RBA, Toughened Verbal Intervention

2015-08-03 21:00:00
David Song, Shuyang Ren,
Share:

- Reserve Bank of Australia (RBA) to Hold Cash Rate at 2.00% for Second Straight Meeting.

- Will Governor Glenn Stevens Toughen the Verbal Intervention on the Australian Dollar?

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

Trading the News: Reserve Bank of Australia Interest Rate Decision

According to a Bloomberg News survey, 25 of the 28 economists polled forecast the Reserve Bank of Australia (RBA) to keep the cash rate on hold at 2.00%, and the wait-and-see approach may help to boost the appeal of the aussie as market participants scale back bets for lower borrowing-costs.

What’s Expected:

AUD/USD Range Vulnerable to Dovish RBA, Toughened Verbal Intervention

Click Here for the DailyFX Calendar

Why Is This Event Important:

However, RBA Governor Glenn Stevens may continue to jawbone the local currency amid the weakening outlook for global growth, and the central bank may toughen the verbal intervention on the Australian dollar in an effort to further assist with the rebalancing of the real economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index- Trimmed Mean (YoY) (2Q)

2.1%

2.2%

Consumer Inflation Expectation (JUL)

--

3.4%

Employment Change (JUN)

0.0K

7.3K

Sticky price growth paired with the ongoing improvement in the labor market may encourage the RBA to preserve its current policy throughout 2015, and the fresh batch of central bank rhetoric may spur a near-term rebound in AUD/USD should Governor Stevens talk down bets for a further reduction in the cash rate.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Building Approvals (MoM) (JUN)

-1.0%

-8.2%

Retail Sales (MoM) (MAY)

0.5%

0.3%

Trade Balance (MAY)

-2225M

-2751M

However, the RBA may keep the door open to further embark on its easing cycle amid the weakening demand from home and abroad, and the higher-yielding currency remains at risk of facing additional headwinds over the near to medium-term especially if the central bank head takes a more aggressive approach in talking-down the exchange rate.

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How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Endorses Neutral Stance for Remainder of 2015

  • Need green, five-minute candle following the rate decision for a potential long AUD/USD trade.
  • If market reaction favors a bullish 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 Rate Cut/Toughened 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:

AUD/USD Multi-Year Trendline at Risk on Weak Data, Dovish RBA

AUDUSD Ends Week and Month with Large Outside Daily Bar

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • AUD/USD remains at risk for a further decline as long as price & the Relative Strength Index (RSI) retains the bearish formation from back in May; will continue to favor the approach to sell-bounces especially if the RBA keeps the door open for additional rate cuts.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long AUD/USD since May 15, while the ratio climbs back towards extremes as it currently sits at +2.93 with 75% of traders long.
  • Interim Resistance: 0.7570 (50% expansion) to 0.7590 (100% expansion)
  • Interim Support: 0.7233 (July low) to 0.7240 (100% expansion) 0.7268 (Jan. 2009 high)

Impact that the RBA Interest Rate decision has had on AUD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL 2015

07/07/2015 4:30 GMT

2.00%

2.00%

+17

-38

July 2015 Reserve Bank of Australia (RBA) Interest Rate Decision

AUD/USD Chart

The Reserve Bank of Australia (RBA) kept the cash rate target unchanged the record-low of 2.00%, Governor Glenn Stevens largely striking a neutral outlook for monetary policy. Following the rate-cut in May, it seems as though the RBA will retain a wait-and-see approach for the foreseeable future, but the central bank continued to jawbone the local currency as the board looks for a lower exchange rate. The market reaction was fairly muted as we got more of the same from the RBA, but the Australian dollar struggled to hold its ground during the European trade, with AUD/USD falling below the 0.7475 region to end the day at 0.7450.

--- 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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