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Less-Dovish Reserve Bank of Australia (RBA) to Fuel AUD/USD Rebound

Less-Dovish Reserve Bank of Australia (RBA) to Fuel AUD/USD Rebound

2016-10-31 21:30:00
David Song, Strategist
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- Reserve Bank of Australia (RBA) to Keep Official Cash Rate at Record-Low of 1.50%.

- Will Governor Philip Lowe Soften the Dovish Outlook for Monetary Policy?

For more updates, sign up for David's e-mail distribution list.

Trading the News: Reserve Bank of Australia Interest Rate Decision

The Reserve Bank of Australia (RBA) is widely expected to keep the benchmark interest rate at the record-low of 1.50% in November, but the fresh batch of central bank rhetoric may fuel the near-term rebound in AUD/USD should the central bank endorse a wait-and-see approach for monetary policy.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

More of the same from Governor Philip Lowe and Co. may boost the appeal of the higher-yielding currency as officials appear to be in no rush to further support the real economy, and the Australian dollar may outperform against its major counterparts over the remainder of the year should the central bank show a greater willingness to gradually move away from its easing-cycle. However, the ‘lower than average pace’ of global growth may push the RBA to further assist with the rebalancing of the real economy, and comments pointing to additional monetary support may undermine the near-term outlook for AUD/USD as the pair appears to be stuck in a broader holding pattern.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

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

1.7%

1.7%

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

--

1.1%

Retail Sales (MoM) (AUG)

0.2%

0.4%

Signs of sticky price growth paired with the pickup in household consumption may keep the RBA on the sidelines, and the Australian dollar may try to stage a larger rebound over the days ahead should the central bank soften the dovish outlook for monetary policy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Private-Sector Credit (YoY) (SEP)

5.5%

5.4%

Employment Change (SEP)

15.0K

-9.8K

Home Loans (MoM) (AUG)

-1.5%

-3.0%

Nevertheless, easing job growth accompanied by the slowdown in private-sector lending may push Governor Lowe to adopt a more cautious tone, and the aussie-dollar stands at risk of giving back the advance from the October low (0.7506) should the RBA keep the door open to further embark on its easing-cycle.

How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Curbs Speculation for More Easing

  • Need green, five-minute candle following the rate-decision for a long AUD/USD trade.
  • If market reaction favors a bullish aussie position, buy AUD/USD with two separate lots.
  • 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 Lowe Keeps Door Open for Additional Monetary Support

  • Need red, five-minute candle to consider a short aussie position.
  • Carry out the same setup as the bullish AUD trade, just in reverse.

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for AUD/USD remains constructive as the pair preserves the bullish trend from earlier this year, with the pair at risk of moving back towards the top of the recent range as bounces back from trendline support; may see the ascending triangle formation finally unfold on a break/close above the Fibonacci overlap around 0.7730 (61.8% retracement) to 0.7740 (78.6% expansion).
  • Interim Resistance: 0.7835(2016 high) to 0.7860 (61.8% expansion)
  • Interim Support: 0.7442 (September low) to 0.7450 (38.2% retracement)

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

Impact that the RBA Interest Rate Decision has had on AUD/USD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

OCT 2016

10/04/2016 03:30 GMT

1.50%

1.50%

-11

-60

October 2016 Reserve Bank of Australia Interest Rate Decision

AUD/USD 5-Minute Chart

AUD/USD Chart

The Reserve Bank of Australia (RBA) kept the official cash rate (OCR) at the record-low of 1.50%, with the central bank largely reiterating a wait-and-see approach for monetary policy as the economy continues to grow at a ‘moderate’ pace. At the same time, Governor Philip Lowe and Co. warned that the low-inflation environment is likely to ‘remain the case for some time’ on the back of weak wage growth, but it seems as though the central bank will preserve the current policy throughout the remainder of the year as ‘forward-looking indicators point to continued expansion in employment in the near term.’ The Australian dollar struggled to hold its ground following the cautious comments from the RBA, with AUD/USD slipping below the 0.7675 area to end the day at 0.7617.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Election Volatility and Short-term Trading Levels

Forex Technical Focus: AUD/JPY and a Big Confluence

USD/JPY Rally Vulnerable to Wait-and-See BoJ, 7 to 3 FOMC Split

NZD/USD at Risk for Further Losses Heading into U.S. 3Q GDP

--- 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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