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Upbeat RBA to Fuel AUD/USD Rebound- 0.7530 Hurdle in View

Upbeat RBA to Fuel AUD/USD Rebound- 0.7530 Hurdle in View

David Song, Strategist

- Reserve Bank of Australia (RBA) to Keep Official Cash Rate at 1.50% for Fourth Straight Meeting.

- 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 official cash rate at the record-low of 1.50% at the last policy meeting for 2016, and more of the same from Governor Philip Lowe and Co. may fuel the near-term rebound in AUD/USD as the central bank appears to be gradually moving away from its easing-cycle.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

It seems as though the RBA will carry its current policy into 2017 and may shift its stance over the coming months as the central bank sees the economy ‘growing at a moderate rate.’ In turn, the Australian dollar may stage a larger recovery should the fresh batch of central bank rhetoric boost interest-rate expectation. However, a more dovish tone from Governor Lowe may drag on the exchange rate and instill a bearish outlook for the higher-yielding currency should the central bank sound more cautious this time around.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Inventories s.a. (QoQ) (3Q)

0.3%

0.8%

Retail Sales (MoM) (OCT)

0.3%

0.5%

Private Sector Credit (YoY) (OCT)

5.2%

5.3%

The RBA may continue to talk down bets for additional monetary support amid the ongoing expansion in private-sector lending accompanied by the pickup in household consumption, and the policy statement may spark a bullish reaction in the Australian dollar should the central bank may adopt an improved outlook for the region.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Building Approvals (YoY) (OCT)

-6.2%

-24.9%

Employment Change (OCT)

16.0K

9.8K

Wage Price Index (YoY) (3Q)

2.0%

1.9%

Nevertheless, waning job growth paired with the slowdown in building activity may become a growing concern for the central bank, and the aussie-dollar stands at risk of giving back the advance from the December low (0.7369) should the RBA keep the door open to further support the real economy.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Policy Statement Boosts Interest Rate Expectations

  • 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 Adopts Cautious/Dovish Tone

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

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for AUD/USD is now tilted to the downside as the pair fails to preserve the upward trend from earlier this year, but the aussie-dollar may stage a larger rebound over the near-term especially as the Relative Strength Index (RSI) continues to come off of oversold territory, with a break/close above 0.7500 (50% retracement) opens up the next topside region of interest coming in around 0.7530 (38.2% expansion).
  • Interim Resistance: 0.7730 (61.8% retracement) to 0.7770 (61.8% expansion)
  • Interim Support: 0.7150 (161.8% expansion) to 0.7180 (61.8% retracement)

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

Impact that theRBA Interest Rate Decision 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)

NOV 2016

11/01/2016 03:30 GMT

1.50%

1.50%

+37

+33

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

AUD/USD 5-Minute Chart

AUD/USD Chart

After keeping the benchmark interest rate unchanged at 1.50% in November, the Reserve Bank of Australia (RBA) continued to endorse a wait-and-see approach for monetary policy as ‘the economy is forecast to grow at close to its potential rate, before gradually strengthening.’ Moreover, Governor Philip Lowe and Co. argued ‘inflation is expected to pick up gradually over the next two years’ as the rate-cuts from earlier this year continue to work their way through the real economy, and it seems as though the RBA will carry the current stance into 2017 as the central bank appears to be approaching the end of its easing-cycle. The Australian dollar popped higher following the RBA rate-decision, with AUD/USD advancing from 0.7615 to end the day at 0.7650.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Will the Market Respect Support This Week?

Euro Rallying as Italian Referendum Dashes MS5 Hopes

Technical Focus: Bond Yields - That was Fast!

New Zealand Dollar Clobbered as PM Key Steps Down

--- 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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