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AUD/USD Risks Larger Recovery on Wait-and-See RBA

AUD/USD Risks Larger Recovery on Wait-and-See RBA

2016-08-01 21:00:00
David Song, Strategist
Share:

- Reserve Bank of Australia (RBA) Expected to Cut Official Cash Rate to Fresh Record-Low of 1.50%.

- Will RBA Keep the Door Open for More Easing as Governor Stevens Departs?

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, 20 of the 25 economists polled forecast the Reserve Bank of Australia (RBA) to reduce the benchmark interest rate by 25bp to a fresh record-low of 1.50%, but AUD/USD may mount a near-term recovery should the central bank endorse a wait-and-see approach for monetary policy.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

With Philip Lowe scheduled to take the helm in September, RBA Governor Glenn Stevens may stick with the status quo and offer little guidance for monetary policy as central bank officials waits for more information to ‘refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate.’

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Private Sector Credit (MoM) (JUN)

0.5%

0.2%

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

--

-3.0%

Retail Sales (MoM) (MAY)

0.3%

0.2%

Waning household confidence accompanied by the slowdown in private-sector consumption may push the RBA to further support the real economy, and the Australian dollar stands at risk of facing near-term headwinds should the central bank further embark on its easing cycle.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index- Trimmed Mean (YoY) (2Q)

1.5%

1.7%

Full-Time Employment Change (JUN)

--

38.4K

Participation Rate (JUN)

64.8%

64.9%

However, the stickiness in the core rate of inflation paired with the ongoing improvement in labor market dynamics may keep the RBA on the sidelines, and more of the same from Governor Stevens may spur a relief rally in AUD/USD as market participants scale back bets for a rate-cut.

How To Trade This Event Risk(Video)

Bearish AUD Trade: RBA Implements Lower Borrowing-Costs

  • Need red, five-minute candle following the rate decision for a short AUD/USD trade.
  • If market reaction favors a bearish aussie position, sell AUD/USD with two separate lots.
  • 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 Glenn 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 the opposite direction.

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart
  • AUD/USD may continue to retrace the decline from the April high (0.7834) as the pair preserves the upward trend from the end of May, while the Relative Strength Index (RSI) threatens the bearish formation carried over from June; need a closing price above 0.7650 (78.6% retracement) to favor a further advance in the exchange rate.
  • Key Resistance: 0.7848 (June 2015 high) to 0.7860 (61.8% expansion)
  • Key Support: 0.6826 (2016 low) to 0.6830 (161.8% expansion)

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

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)

JUL 2016

07/05/2016 04:30 GMT

1.75%

1.75%

-5

+57

July 2016 Reserve Bank of Australia Interest Rate Decision

AUD/USD 5-Minute Chart

AUD/USD Chart

As expected, the Reserve Bank of Australia (RBA) kept the official cash rate unchanged at 1.75% in July, and largely endorsed a wait-and-see approach for monetary policy as ‘the Board judged that holding monetary policy steady would be the most prudent course of action at this meeting.’ Even though the RBA keeps the door open to further assist with the rebalancing of the real economy, the board may stick to the sidelines throughout the summer months as Governor Glenn Stevens prepares to depart from the central bank in 2016. The initial move higher in AUD/USD was short-lived, with the Australian dollar struggling to hold its ground throughout the day as the pair closed at 0.7460.

Get our top trading opportunities of 2016 HERE

Read More:

COT-Record British Pound Ownership Profile

DAX: Continues to Defy Gravity, for Now

USDOLLAR Heavy on GDP- Monthly Opening Range to Hinge on NFP

USD/JPY Technical Analysis: Shocks Tend To Happen With The Trend

--- 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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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