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

  • Reserve Bank of Australia (RBA) to Keep Cash Rate at Record-Low of 1.50%. Will Governor Philip Lowe and Co. Continue to Endorse a Wait-and-See Approach for Monetary Policy?
  • AUD/USD Rate Eyes December-Low (0.7501). Relative Strength Index (RSI) Comes Up Against Oversold Territory.
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The Reserve Bank of Australia (RBA) interest rate decision may fuel the recent weakness in AUD/USD should the central bank endorse a wait-and-see approach for monetary policy.

Governor Philip Lowe & Co. may continue to curb expectations for an imminent rate-hike as ‘inflation remains low, with both CPI and underlying inflation running a little below 2 per cent,’ and the central bank may merely attempt to buy more time amid ‘concerns about the direction of international trade policy in the United States.’ In turn, more of the same from the RBA may produce a bearish reaction in the Australian dollar as market participants push out bets for higher borrowing-costs.

However, a material shift in the forward-guidance for monetary policy may curb the recent weakness in the AUD/USD rate, and a batch of hawkish comments may heighten the appeal of the Australian dollar as it boosts speculation for a rate-hike in 2018. Sign up and join DailyFX Currency Strategist Ilya Spivak LIVE to cover the RBA rate decision.

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)

APR

2018

04/03/2018 04:30:00 GMT

1.50%

1.50%

-6

-7

April 2018 Reserve Bank of Australia (RBA) Interest Rate Decision

AUD/USD 5-Minute Chart

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As expected, the Reserve Bank of Australia (RBA) held the cash rate at the record-low of 1.50% in April, with the central bank promoting a wait-and-see approach for monetary policy as ‘inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing.

The comments suggests the RBA remain remains no rush to implement higher borrowing-costs as ‘household income has been growing slowly and debt levels are high,’ and Governor Lowe and Co. may stick to the sidelines throughout 2018 as ‘the low level of interest rates is continuing to support the Australian economy.’ More of the same from the RBA sparked a limited reaction, with the AUD/USD rate ending the day marginally higher as the pair closed at 0.7682.

AUD/USD Daily Chart

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  • AUD/USD appears to be on course to test the December-Low (0.7501) as it extends the series of lower highs & lows from the previous week, with the pair coming into the Fibonacci overlap around 0.7460 (23.6% retracement) to 0.7530 (38.2% expansion).
  • A break/close below the stated regions opens up the next region of interest around 0.7340 (61.8% retracement) followed by the overlap around 0.7090 (78.6% retracement) to 0.7180 (61.8% retracement).
  • Need to keep a close eye on the Relative Strength Index (RSI) as it comes up against oversold territory, with a break below 30 raising the risk for a further decline in the aussie-dollar exchange rate as the bearish momentum gathers pace.

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--- Written by David Song, Currency Analyst

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