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Toughened RBA Verbal Intervention to Spur Additional AUD/USD Losses

Toughened RBA Verbal Intervention to Spur Additional AUD/USD Losses

2016-04-05 00:30:00
David Song, Currency Strategist
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- Reserve Bank of Australia (RBA) Widely Expected to Keep Official Cash Rate at 2.00%.

- Will Governor Glenn Stevens Jawbone the Australia 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, all of the 26 economists polled forecast the Reserve Bank of Australia (RBA) to keep the benchmark interest rate on hold at 2.00%, but the fresh batch of central bank rhetoric may drag on AUD/USD should Governor Glenn Stevens toughen the verbal intervention on the local currency.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

The Australia dollar may face a lackluster reaction should the RBA largely reiterate the policy statement from the February meeting, but greater concerns surrounding the recent appreciation in the exchange rate may undermine the near-term advance in AUD/USD as the central bank favors a weaker currency to assist with the rebalancing of the real economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Building Approvals (MoM) (FEB)

2.5%

3.1%

Private Sector Credit (MoM) (FEB)

0.5%

0.6%

Gross Domestic Product (YoY) (4Q)

2.5%

3.0%

The ongoing expansion in the housing market accompanied by signs of a stronger-than-expected recovery may encourage the RBA to adopt a more upbeat outlook for the region, and more of the same from Governor Stevens and Co. may heighten the appeal of the Australian dollar as the central bank appears to be approaching the end of its easing cycle.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (FEB)

0.4%

0.0%

Employment Change (FEB)

13.5K

0.3K

Consumer Inflation Expectation (MAR)

--

3.4%

However, the downward tilt in inflation-expectations paired the slowdown in private-sector consumption may force the RBA to further insulate the real economy, and the aussie stands at risk of facing near-term headwinds should the central bank show a greater willingness to implement lower borrowing-costs in 2016.

How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Sticks to 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 Jawbones Australian Dollar

  • 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.

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The near-term advance in AUD/USD appears to be getting exhaust as a bearish divergence in the Relative Strength Index (RSI) starts to take shape, with the 20-Day SMA (0.7560) largely in focus as it provides near-term support.
  • Interim Resistance: 0.7848 (June 2015 high) to 0.7860 (61.8% expansion)
  • Interim Support: 0.6830 (161.8% expansion) to 0.6860 (61.8% expansion)

Check out the short-term technical levels that matter for AUD/USD heading into the report!

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

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)

FEB 2015

02/29/2016 02:30 GMT

2.00%

2.00%

+18

+57

February 2016 Reserve Bank of Australia (RBA) Interest Rate Decision

AUD/USD 5-Minute Chart

AUD/USD Chart

As expected, the Reserve Bank of Australia (RBA) kept the benchmark interest rate unchanged at 2.00% for the tenth consecutive month, with the central bank still endorsing a dovish outlook for monetary policy as ‘continued low inflation would provide scope for easier policy.’ Nevertheless, the board judged it would be ‘appropriate’ to retain the current policy in February as ‘the available information suggests that the expansion in the non-mining parts of the economy strengthened during 2015 despite the contraction in spending in mining investment.’ The Australian dollar tracked higher following the wait-and-see approach, with AUD/USD coming off of the 0.7110 region to end the trading day at 0.7174.

Read More:

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Get our top trading opportunities of 2016 HERE

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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