AUD/USD 2016 Advance at Risk on Toughened RBA Verbal Intervention
- Reserve Bank of Australia (RBA) Anticipated to Keep Official Cash Rate at 2.00%.
- Will Governor Glenn Stevens Keep the Door Open for Lower Borrowing-Costs?
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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 forecast the Reserve Bank of Australia (RBA) to keep the benchmark interest rate on hold at 2.00%, but the fresh comments coming out of the central bank may spark a bearish reaction in the Australian dollar should Governor Glenn Stevens and Co. toughen the verbal intervention on the local currency.
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Why Is This Event Important:
More of the same from the RBA may spark a lackluster reaction as Governor Stevens continues to endorse a wait-and-see approach, but the central bank may increase its efforts to talk-down the local currency in order to further assist with the rebalancing of the real economy.
Expectations: Bullish Argument/Scenario
|Private Sector Credit (MoM) (JAN)||0.5%||0.5%|
|Private Capital Expenditure (4Q)||-3.0%||0.8%|
|Consumer Inflation Expectations (FEB)||--||3.6%|
The RBA may stick to the sidelines throughout 2016 as inflation expectations remain largely anchored, and bright signs coming out of the region may encourage Governor Stevens to adopt a more neutral outlook for monetary policy as the previous rate-cuts work their way through the real economy.
Risk: Bearish Argument/Scenario
|Company Operating Profit (QoQ) (4Q)||-1.8%||-2.8%|
|Wage Price Index (YoY) (4Q)||2.3%||2.2%|
|Retail Sales (MoM) (DEC)||0.4%||0.0%|
However, the slowdown in private-sector earnings may prompt the RBA to further insulate economy, and a greater willingness to implement additional monetary support may dampen the appeal of the higher-yielding currency as interest rate expectations deteriorate.
How To Trade This Event Risk(Video)
Bullish AUD Trade: RBA Remains on Sidelines, Endorses 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 Toughens Verbal Intervention/Adopts More Dovish Tone
- Need red, five-minute candle to consider a short AUD/USD position.
- Carry out the same setup as the bullish aussie trade, just the opposite direction.
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Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- The near-term advance in AUD/USD may largely unravel over the coming days as the pair fails to test the 200-Day SMA (0.7263), while the Relative Strength Index (RSI) struggles to retain the bullish formation from earlier this year.
- 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)
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- The DailyFX Speculative Sentiment Index (SSI) continues to show increased volatility in retail positioning, with the FX crowd flipping back net-long AUD/USD ahead of the RBA interest rate decision.
- The recent shift in positioning could be a result of month end flows as shorts narrowed 25.8% from the previous week, with the ratio currently sitting at +1.03 as 51% of traders are now long.
Why and how do we use the SSI in trading? View our video and download the free indicator here
Impact that the RBA Interest Rate decision has had on AUD during the last meeting
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|FEB 2015||02/02/2016 03:30 GMT||2.00%||2.00%||-28||-24|
February 2016 Reserve Bank of Australia (RBA) Interest Rate Decision
Even though the Reserve Bank of Australia (RBA) kept the cash rate on hold at 2.00%, Governor Glenn Stevens and Co. left the door open to further support the real economy as the central bank anticipates ‘below-average’ growth over the policy horizon. As a result, signs of a slowing recovery may push the RBA to further embark on its easing cycle as China – Australia’s largest trading partner – faces a growing risk for a ‘hard-landing.’ The initial market reaction was short-lived, with AUD/USD struggling to hold above the 0.7100 handle as the pair ended the Asia/Pacific trade at 0.7079.
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--- Written by David Song, Currency Analyst and Shuyang Ren
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