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AUD/USD Mounts Larger Test of Bearish Formation Ahead of RBA Minutes

AUD/USD Mounts Larger Test of Bearish Formation Ahead of RBA Minutes

2015-09-14 21:00:00
David Song, Strategist
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- Reserve Bank of Australia (RBA) Minutes to Endorse Wait-and-See Approach.

- Will the Policy Statement Highlight an End of RBA’s Easing Cycle?

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

Trading the News: Reserve Bank of Australia Minutes

The fresh rhetoric coming out of the Reserve Bank of Australia (RBA) may fuel a larger rebound in AUD/USD should the central bank adopt a more hawkish outlook for monetary policy.

What’s Expected:

AUD/USD RBA Minutes

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though RBA Governor Glenn Stevens retains the verbal intervention on the local currency, comments foreshadowing the end of the central bank’s easing cycle may boost the appeal of the aussie, but more of the same commentary may undermine the near-term advance in AUD/USD amid the deviation in the policy outlook.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Employment Change (AUG)

5.0K

17.4K

Unemployment Rate (AUG)

6.2%

6.2%

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

2.1%

2.2%

Sticky price growth accompanied by the ongoing improvement in the labor market may encourage the RBA to deliver a more upbeat tone this time around, and the Australian dollar may continue to retrace the decline from the previous month should the policy statement boost interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (JUL)

0.4%

-0.1%

NAB Business Confidence (AUG)

--

1

Gross Domestic Product (YoY) (2Q)

2.2%

2.0%

However, the RBA may keep the door open to further embark on its easing cycle amid waning business confidence paired with fears of a slower recovery, and a more dovish statement may dampen the appeal of the aussie especially as the central bank continues to look for a weaker exchange rate.

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How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Signals End to Easing Cycle

  • Need green, five-minute candle following the report 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: Australia Job Growth Falls Short of Market Forecast

  • Need red, five-minute candle to consider a short AUD/USD position.
  • Carry out the same setup as the bullish aussie trade, just in the opposite direction.

Read More:

EUR/USD Extends Post-ECB Rally; 1.1500 on Tap?

AUDUSD-Reversal Risk from Down Under

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though AUD/USD retains the downward trend from May, a close above 0.7080 (38.2% expansion) to 0.7090 (78.6% retracement) may highlight a larger correction especially if the Relative Strength Index (RSI) fails to retain the bearish formation from earlier this year.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long AUD/USD since May 15, but the ratio appears to be working its way back towards recent extremes as it widens to +2.16, with 68% of traders long.
  • Interim Resistance: 0.7220 (23.6% expansion) to 0.7240 (100% expansion)
  • Interim Support: 0.6830 (161.8% expansion) to 0.6860 (61.8% expansion)

Join DailyFX on Demandfor Real-Time Updates on the DailyFX Speculative Sentiment Index!

Impact that Reserve Bank of Australia Minutes 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)

AUG 2015

08/18/2015 01:30 GMT

--

--

+10

-28

August 2015Reserve Bank of Australia Minutes

AUD/USD Chart

The Reserve Bank of Australia (RBA) Minutes continued to highlight a neutral outlook for monetary policy after the central bank kept the cash rate on hold at the August 4 interest rate decision, and the board may largely endorse a wait-and-see approach throughout 2015 as the depreciation in the local currency assists with the rebalancing of the real economy. Despite the upbeat tone, the RBA may retain its push for a weaker currency and preserve the verbal intervention on the Australian dollar in an effort to further insulate the region. Despite the bullish market reaction in AUD/USD, the advance was short-lived as the pair slipped back below the 0.7350 region to end the day at 0.7340.

--- 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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