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

The Reserve Bank of Australia (RBA) meeting may do little to alter the near-term outlook for AUD/USD as the central bank is widely expected to keep the official cash rate (OCR) at the record-low of 1.50%.

Image of DailyFX economic calendar

The RBA may merely attempt to buy more time as ‘inflation is low and is likely to remain so for some time,’ and Governor Philip Lowe & Co. may stick to the current script as ‘household income has been growing slowly and debt levels are high.

With that said, the fresh rhetoric coming out of the RBA may continue to tame expectations for a 2018 rate-hike, with the Australian dollar at risk of facing additional headwinds over the remainder of the year as the central bank remains in no rush to implement higher borrowing-costs.

However, an unexpected shift in forward guidance for monetary policy may spark a rebound in AUD/USD, with a batch of hawkish comments raising the risk for a rebound in the Australia dollar especially if the central bank starts to show a greater willingness to normalize monetary policy. Sign up and join DailyFX Junior Currency Analyst Daniel Dubrovsky LIVE to cover the RBA meeting.

Impact that the RBA rate decision 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)

JUN

2018

06/05/2018 04:30:00 GMT

1.50%

1.50%

-6

-20

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

AUD/USD 5-Minute Chart

Image of AUDUSD 5-minute chart

As expected, the Reserve Bank of Australia (RBA) held the official cash rate (OCR) at the record-low of 1.50% in June, and it seems as though the central bank is in no rush to alter the monetary policy outlook as ‘recent data on the Australian economy have been consistent with the Bank's central forecast for GDP growth to pick up, to average a bit above 3 per cent in 2018 and 2019.

With that said, the RBA may endorse a wait-and-see approach throughout 2018 as ‘the low level of interest rates is continuing to support the Australian economy,’ and the central bank may continue to tame expectations for an imminent rate-hike as 'wages growth remains low.' The RBA meeting sparked a limited reaction, with AUD/USD largely consolidating throughout the day to close at 0.7616. Learn more with the DailyFX Advanced Guide for Trading the News.

AUD/USD Daily Chart

Image of AUDUSD daily chart
  • Broader outlook for AUD/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) continue to track the bearish formations from earlier this year, with the monthly opening range in focus as the pair slips to a fresh 2018-low (0.7311).
  • Need a close below the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region to open up the next hurdle around 0.7230 (61.8% expansion) with the next area of interest coming in around 0.7150 (161.8% expansion) to 0.7180 (61.8% retracement).

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.