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AUD/USD to Eye November High on Upbeat RBA Outlook

AUD/USD to Eye November High on Upbeat RBA Outlook

2017-02-06 22:00:00
David Song, Strategist
Share:

- Reserve Bank of Australia (RBA) to Keep Official Cash Rate at Record-Low of 1.50%.

- Has the RBA Hit the End of Its Easing-Cycle?

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

Trading the News: Reserve Bank of Australia (RBA) Interest Rate Decision

More of the same from the Reserve Bank of Australia (RBA) may produce another limited reaction in AUD/USD, but a shift in the monetary policy outlook may fuel the near-term advance in the aussie-dollar exchange rate should Governor Philip Lowe and Co. show a greater willingness to gradually move away from the accommodative policy stance.

What’s Expected:

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Why Is This Event Important:

After delivering two rate-cuts in 2016, the RBA may continue to soften its dovish tone as higher commodity prices are ‘providing a boost to national income’ and improves Australia’s terms of trade. In turn, the fresh batch of central bank rhetoric may heighten the appeal of the aussie should Governor Lowe curb speculation for additional monetary support, but the first interest rate decision for 2017 may generate a lackluster response should the RBA keep the door open to further insulate the real economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Trade Balance (AUD) (DEC)

$2.000B

$3.511B

Consumer Price Index- Trimmed Mean (YoY) (4Q)

1.6%

1.6%

Employment Change (DEC)

10.0K

13.5K

Signs of sticky price growth paired with the record trade surplus may encourage the RBA to adopt an improved outlook for the region, and the Australian dollar may extend the advance from earlier this year should the central bank talk down expectations for additional monetary support.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (DEC)

0.3%

-0.1%

Building Approvals (YoY) (DEC)

-10.8%

-11.4%

Gross Domestic Product s.a. (QoQ) (3Q)

-0.1%

-0.5%

Nevertheless, the slowdown in private-sector consumption accompanied by the economic contraction in the third-quarter of 2016 may push Governor Lowe to sound more cautious this time around, and the aussie-dollar may struggle to hold its ground going should the RBA keep the door open to implement lower borrowing-costs.

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

How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Continues to Drop Dovish Outlook for Monetary Policy

  • 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 Clings to Easing-Cycle

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

If you’re looking for trading ideas, check out our Trading Guides.

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • The near-term outlook for AUD/USD remains constructive as the pair breaks out of bull-flag formation, with the pair at risk of making a run at the November high (0.7778) as it appears to be coiling in a near-term wedge/triangle.
  • Need to keep a close eye on the Relative Strength Index (RSI) as it struggles to push into overbought territory, with the oscillator coming up against trendline support; bearish RSI trigger may highlight a continuation of the 2016 range as market participants weigh the outlook for monetary policy.
  • 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/JPY heading into the rate decision!

Impact that the RBA interest rate decision has had on AUD/USD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

DEC 2016

12/06/2016 03:30 GMT

1.50%

1.50%

+5

+6

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

AUD/USD 10-Minute

AUD/USD Chart

After reducing the official cash rate to a record-low of 1.50% in August, the Reserve Bank of Australia (RBA) continued to endorse a wait-and-see approach at its last interest rate decision for 2016 as ‘the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.’ At the same time, the RBA appears to be softening its dovish tone as Governor Philip Lowe and Co. argue ‘globally, the outlook for inflation is more balanced than it has been for some time,’ but it seems as though the central bank is in no rush to move away from its easing-cycle as inflation is expected to remain low for some time, before returning to more normal levels.’ More of the same from the RBA generated a limited market reaction, with AUD/USD consolidating throughout the day to close at 0.7461.

Read More:

DailyFX Roundtable: Key Trade Setups & Themes Ahead of RBA & RBNZ

S&P 500: Break to New Highs Near, Longs Preferred on Dips

Technical Weekly: EUR/USD Outside Week Follows Narrow Range Week

Gold Prices Vulnerable into February Open- Outlook Constructive Above 1200

--- 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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