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AUD/USD Carves Bearish Series Ahead of RBA Policy Meeting

AUD/USD Carves Bearish Series Ahead of RBA Policy Meeting

2017-04-04 00:30:00
David Song, Currency Strategist
Share:

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

- Will Governor Philip Lowe Continue to Tame Interest Rate Expectations?

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

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

The Reserve Bank of Australia (RBA) interest rate decision may yield a limited market reaction as Governor Philip Lowe and Co. are widely anticipated to endorse a wait-and-see approach for monetary policy, but the aussie-dollar exchange rate stands at risk of extending the decline from the end of March if the central bank attempt to buy more time.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

AUD/USD may continue to operate within the range carried over from 2016 as the RBA notes the current stance ‘would be consistent with sustainable growth in the economy and achieving the inflation target over time,’ but the fresh rhetoric may drag on the Australian dollar should the central bank show a greater willingness to preserve the current policy throughout 2017. Indeed, Governor Lowe and Co. may increase their efforts to tame interest-rate expectations as officials emphasize ‘wage growth and underlying inflation were expected to rise, but only gradually,’ and the diverging paths for monetary policy may instill a bearish outlook for AUD/USD especially as the Federal Reserve appears to be on course to implement higher borrowing-costs over the coming months.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (FEB)

0.3%

-0.1%

Private Sector Credit (YoY) (FEB)

5.3%

5.0%

Employment Change (FEB)

16.0K

-6.4K

Easing consumption accompanied by the slowdown in private-sector lending may push the RBA to adopt a more cautious outlook for the region, and the policy statement may spark a bearish reaction in the Australian dollar if the central bank increases its efforts to anchor market speculation for rate-hike.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Building Approvals (MoM) (FEB)

-1.0%

8.3%

House Price Index (YoY) (4Q)

6.3%

7.7%

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

--

0.1%

However, improved confidence paired with the ongoing expansion in the housing market may encourage Governor Lowe to act over the coming months, and the interest rate decision may heighten the appeal of the aussie should the central bank highlight a shift in the monetary policy outlook.

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

How To Trade This Event Risk(Video)

Bearish AUD Trade: Governor Lowe & Co. Tames Interest Rate Expectations

  • Need a red, five-minute candle following the meeting 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: RBA Adopts Hawkish Outlook for Monetary Policy

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

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

  • After failing to test the December high (0.7778), AUD/USD continues to pullback from the 2017-high (0.7682), with the pair at risk for further losses as it carves a near-term series of lower highs & lows, while the Relative Strength Index (RSI) preserves the bearish formation from earlier this year; a break/close below the Fibonacci overlap around 0.7590 (100% expansion) to 0.7600 (23.6% retracement) opens up the next downside region of interest around to 0.7500 (50% retracement 0.7530 (38.2% expansion) followed by 0.7450 (38.2% retracement).
  • 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)

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)

MAR

2017

03/07/2016 03:30 GMT

1.50%

1.50%

+12

-26

March 2017 Reserve Bank of Australia (RBA) Interest Rate Decision

AUD/USD 5-Minute

AUD/USD Chart

The Reserve Bank of Australia (RBA) stuck to the sidelines in March, with Governor Philip Lowe and Co. largely endorsing a wait-and-see approach for monetary policy after keeping the official cash rate at the record-low of 1.50%. The RBA appears to be in no rush to normalize policy as officials argue ‘headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices,’ and it seem as though the central bank will continue to tame interest rate expectations in the first-half of 2017 as the rise in underlying price growth is expected to be ‘a bit more gradual.’ The Australian dollar managed to climb back above the 0.7600 handle following the RBA meeting, but the move was short-lived, with AUD/USD ending the day at 0.7584.

Read More:

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Crude Oil Price Forecast: Oil To 200DMA On Libya’s Force Majure Claim

--- Written by David Song, Currency Analyst

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

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