- Reserve Bank of Australia (RBA) Widely Anticipated to Keep Cash Rate at 2.00%.
- Will Governor Glenn Stevens Continue to Endorse Wait-and-See Approach?
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Trading the News: Reserve Bank of Australia Interest Rate Decision
According to a Bloomberg News survey, all of the 27 economists polled expect the Reserve Bank of Australia (RBA) to keep the benchmark interest rate on hold at 2.00%, and more of the same from Governor Glenn Stevens and Co. may fuel a larger rebound in AUD/USD as market participants scale back bets for lower borrowing-costs.
What’s Expected:
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Why Is This Event Important:
Despite below-trend growth, the RBA may continue to endorse a wait-and-see approach as the depreciation in the local currency is ‘expected to support growth, particularly through a larger contribution from net service exports,’ and the central bank may stick to the sidelines throughout 2015 as the rate cuts from earlier this year continue to work their way through the real economy.
Expectations: Bullish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Retail Sales (MoM) (AUG) | 0.4% | 0.4% |
| Private Sector Credit (MoM) (AUG) | 0.5% | 0.6% |
| Employment Change (AUG) | 5.0K | 17.4K |
The pickup in private-sector consumption accompanied by the ongoing improvement in the labor market may encourage Governor Stevens to adopt an improved outlook for the region, and the central bank head may talk down bets for another rate cut as the depreciation in the AUD/USD exchange rate helps to balance the risks the region.
Risk: Bearish Argument/Scenario
| Release | Expected | Actual |
|---|---|---|
| Building Approvals (MoM) (AUG) | -2.0% | -6.9% |
| Gross Domestic Product s.a. (QoQ) (2Q) | 0.4% | 0.2% |
| Private Capital Expenditure (2Q) | -2.5% | -4.0% |
However, the RBA may toughen the verbal intervention on the local currency & show a greater willingness to further embark on its easing cycle as the risk for a slower recovery, and a dovish shift in the central bank outlook may spark a short-term selloff in the aussie-dollar amid the deviating paths for monetary policy.
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How To Trade This Event Risk(Video)
Bullish AUD Trade: RBA Preserves Wait-and-See Approach
- 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 Adopts Dovish Outlook or Policy
- 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 Risk Larger Recovery on Wait-and-See RBA; Sept. High on Tap?
October Forex Seasonality Foresees Disappointing US Dollar Performance
Potential Price Targets For The Release
AUD/USD Daily
Chart - Created Using FXCM Marketscope 2.0
- AUD/USD may face a larger rebound in the days ahead following the failed attempt to test the September opening range; waiting for the Relative Strength Index (RSI) to break out of the bearish formation from back in May to provide conviction/confirmation for a more meaningful recovery.
- 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 +2.82, with 74% 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)
Impact that the RBA Interest Rate decision has had on AUD during the last meeting
| Period | Data Released | Estimate | Actual | Pips Change | Pips Change |
|---|---|---|---|---|---|
| SEP 2015 | 09/01/2015 4:30 GMT | 2.00% | 2.00% | -6 | -22 |
September 2015 Reserve Bank of Australia (RBA) Interest Rate Decision
Once again, the Reserve Bank of Australia (RBA) held the benchmark rate at the record-low of 2.00%, with Governor Glenn Stevens largely endorsing a wait-and-see approach as the rate cuts from earlier this year continue to work their way through the real economy. Despite the weakening outlook for global growth, it seems the RBA will stick to the sidelines throughout 2015 as Governor Glenn Stevens anticipates the depreciation in the local currency to further insulate the region. The initial uptick in the Australian dollar was short-lived, with AUD/USD grinding lower throughout the Asian-Pacific trade to end the session at 0.7108.
--- 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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