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AUD/USD Outlook Mired by Split Expectations for RBA Rate Decision

AUD/USD Outlook Mired by Split Expectations for RBA Rate Decision

2015-11-02 23:00:00
David Song, Shuyang Ren,
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- Majority of Market Participants See Reserve Bank of Australia (RBA) Keeping Official 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, 17 of the 29 economists polled forecast the Reserve Bank of Australia (RBA) to keep the official cash rate on hold at 2.00%, but the fresh batch of central bank rhetoric may undermine the near-term rebound in AUD/USD should Governor Glenn Stevens show a greater willingness to further embark on the easing cycle.

What’s Expected:

AUD/USD RBA Rate Decision

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Why Is This Event Important:

Even though the RBA offers limited forward-guidance for monetary policy, Governor Stevens may continue to jawbone the local currency while stirring speculation for lower borrowing-costs as the central bank combats below-trend growth.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Export Price Index (QoQ) (3Q)

0.6%

0.0%

Consumer Price Index- Trimmed Mean (YoY) (3Q)

2.4%

2.1%

Employment Change (SEP)

9.6K

-5.1K

The RBA may take additional steps to further insulate the real economy amid slowing price growth paired with the renewed weakness in the labor market, and the Australian dollar stands at risk of facing near-term headwinds should the central bank highlight a more dovish outlook for monetary policy.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Building Approvals (MoM) (SEP)

1.0%

2.2%

Westpac Consumer Confidence s.a. (MoM) (OCT)

--

4.2%

Retail Sales (MoM) (AUG)

0.4%

0.4%

However, the RBA may largely endorse a wait-and-see approach as the previous rate cuts continue to work their way through the economy, and more of the same from Governor Stevens and Co. may foster a larger rebound in AUD/USD as it boosts interest rate expectations.

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How To Trade This Event Risk(Video)

Bearish AUD Trade: RBA Adopts Dovish Outlook & 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 Endorses Wait-and-See Approach

  • Need green, five-minute candle to consider a long AUD/USD position.
  • Carry out the same setup as the bearish aussie trade, just in reverse.

Read More:

AUD/USD Rebound at Risk on Dovish Reserve Bank of Australia (RBA)

Australian Dollar Under Fire as RBA Meeting, US Jobs Data Loom

Webinar: Big Data Week to Threaten USD- RBA, BoE, NFP Setups in Focus

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • AUD/USD may continue to give back the rebound from September amid the lack of momentum to test the August high (0.7438), while the Relative Strength Index (RSI) fails to preserve the bullish formation from the same period.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long AUD/USD since May 15, but the ratio appears to be coming off of recent extremes as it narrows to +2.03 ahead of the RBA rate decision, with 67% of traders long.
  • Interim Resistance: 0.7380 (50% retracement) to 0.7390 (78.6% 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

(1 Hour post event )

Pips Change

(End of Day post event)

OCT 2015

10/06/2015 03:30 GMT

2.00%

2.00%

+46

+38

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

AUD/USD Chart

The Reserve Bank of Australia (RBA) kept the cash rate steady at 2.00%, with more of the same from Governor Glenn Stevens as the central bank head continues to see a ‘moderate’ recovery in the real economy. Despite the ongoing slack in private-sector activity, it seems as though the RBA will stick to the sidelines throughout 2015 as the central bank forecasts inflation ‘to remain consistent with the target over the next one to two years.’ The Australian dollar rallied following the neutral tone, with AUD/USD climbing above the 0.7100 handle to end the Asia/Pacific trade at 0.7116.

--- 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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