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AUD/USD to Face Further Losses on Toughened RBA Verbal Intervention

AUD/USD to Face Further Losses on Toughened RBA Verbal Intervention

2017-10-02 22:00:00
David Song, Strategist
Share:

- Reserve Bank of Australia (RBA) to Retain Record-Low Cash Rate.

- Will Governor Lowe & Co. Toughen the Verbal Intervention?

- Sign Up & Join DailyFX Market Analyst David Cottle LIVE to Cover the RBA Meeting.

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

RBA Rate Decision

The Reserve Bank of Australia (RBA) policy meeting may spark a limited market reaction as the central bank is widely expected to keep the cash rate at the record-low of 1.50%, but fresh remarks from Governor Philip Lowe and Co. may fuel the recent weakness in AUD/USD if the central bank toughens the verbal intervention on the Australian dollar.

The RBA may continue to jawbone the local currency as a ‘further appreciation of the Australian dollar would be expected to result in a slower pick-up in growth and inflation.,’ and the central bank may deliver a more cautious tone as ‘members noted that the Australian economy had grown at a below-trend rate over 2016/17.’ In turn, AUD/USD stands at risk of giving back the advance from the summer months especially as both price and the Relative Strength Index (RSI) fail to retain the bullish trends from earlier this year.

Impact that RBA 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)

SEP

2017

09/05/2017 04:30:00 GMT

1.50%

1.50%

-4

+28

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

AUD/USD 5-Minute Chart

AUD/USD Chart

Check out our AUD/USD quarterly projections in our FREE DailyFX Trading Forecasts

The Reserve Bank of Australia (RBA) continued to endorse a wait-and-see approach for monetary policy after keeping the official cash rate at the record-low of 1.50%, with the central bank still jawboning the local currency as ‘an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.’ It seems as though the RBA will retain the current policy throughout 2017 as ‘slow growth in real wages and high levels of household debt are likely to constrain future growth in spending,’ and Governor Philip Lowe and Co. may ultimately toughen the verbal intervention on the Australian dollar in an effort to boost the outlook for growth and inflation. Despite the limited market reaction, AUD/USD gained ground throughout the day to close at 0.7995.

How To Trade This Event Risk(Video)

Bearish AUD Trade: RBA Sticks to Record-Low Rate & Toughens Verbal Intervention

  • Need a red, five-minute candle following the policy meeting to consider a short AUD/USD trade.
  • If the 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 Lowe & Co. Adopts Hawkish Outlook for Policy

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

Potential Price Targets For The Release

AUD/USD Daily Chart

AUD/USD Daily Chart

Chart - Created Using Trading View

  • Near-term outlook for AUD/USD remains tilted to the downside as the pair clears the August-low (0.7808) and extends the series of lower-highs from September.
  • Next region of interest coming around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion), which lines up with the 100-Day SMA (0.7767).
  • Keeping a close eye on the Relative Strength Index (RSI) as it appears to be turning over ahead of oversold territory.
  • Interim Resistance: 0.8270 (38.2% retracement) to 0.8295 (2015-high)
  • Interim Support: 0.7720 (23.6% retracement) to 0.7740 (78.6% expansion)

AUD/USD Retail Sentiment

AUD/USD Retail Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

Retail trader data shows 49.0% of traders are net-long AUD/USD with the ratio of traders short to long at 1.04 to 1. The number of traders net-long is 6.4% higher than yesterday and 49.7% higher from last week, while the number of traders net-short is 2.3% higher than yesterday and 25.1% lower from last week.

--- 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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