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Wait-and-See RBA to Keep AUD/USD Afloat; Will Stevens Talk-Down AUD?

Wait-and-See RBA to Keep AUD/USD Afloat; Will Stevens Talk-Down AUD?

2016-05-02 21:45:00
David Song, Strategist
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- Reserve Bank of Australia (RBA) to Keep Official Cash Rate at 2.00% for 11th Consecutive Meeting.

- Will Governor Glenn Stevens Attempt to Talk-Down 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 an updated Bloomberg News survey, 15 of the 27 economists polled forecast the Reserve Bank of Australia (RBA) to keep the benchmark interest rate unchanged at 2.00% in May, but AUD/USD may struggle to hold its ground should the central bank make an increased effort to talk-down the local currency.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

Even though the RBA largely retains a wait-and-see approach, central bank Governor Glenn Stevens may toughen the verbal intervention on the Australian dollar in an effort to further assist with the rebalancing of the real economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Employment Change (MAR)

17.0K

26.1K

ANZ Job Advertisements (MoM) (MAR)

--

0.2%

Gross Domestic Product (YoY) (4Q)

2.5%

3.0%

Signs of a stronger-than-expected recover accompanied by the ongoing improvement in the labor market may keep the RBA on the sidelines, and more of the same from Governor Stevens and Co. may boost the appeal of the Australian dollar as market participants curb bets for lower borrowing-costs.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index- Trimmed Mean (YoY) (1Q)

2.0%

1.7%

Trade Balance (FEB)

-2.500B

-3.410B

Retail Sales (MoM) (FEB)

0.4%

0.0%

Nevertheless, easing price growth paired with slowing demand from home and abroad may push the RBA to implement additional monetary support, and AUD/USD may largely give back the advance from earlier this year should the central bank adopt a more dovish tone for monetary policy.

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 Further Embarks on Easing Cycle

  • 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

  • Even though AUD/USD preserves the bullish trend from earlier this year, the pair may have made a failed run at the June 2015 high (0.7848) as there appears to be a bearish divergence in the Relative Strength Index (RSI).
  • 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)

April 2015

04/05/2016 04:30 GMT

2.00%

2.00%

+1

-49

April 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) left the official cash rate unchanged at 2.00% in April, with the central bank warning that ‘continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand.’ Moreover, the RBA argued that ‘an appreciating exchange rate could complicate the adjustment under way in the economy,’ and Governor Glenn Stevens may make an greater attempt to talk-down the local currency in an effort to mitigate the downside risk for growth and inflation. The initial market reaction was short-lived, with AUD/USD pulling back from a high of 0.7630 to end the day at 0.7540.

Get our top trading opportunities of 2016 HERE

Read More:

SPX500 Technical Analysis: At Support, but Beware the Monthly Doji

China’s Market News: Earnings Reports Reveal Government Purchases

EUR/USD Testing Neckline of Major Double Bottom Pattern

USD/JPY Technical Analysis: Signs of Hope for JPY Bears?

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.

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