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Wait-and-See Reserve Bank of Australia (RBA) to Sap AUD/USD Rebound

Wait-and-See Reserve Bank of Australia (RBA) to Sap AUD/USD Rebound

2018-10-01 23:10:00
David Song, Strategist
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Trading the News: Reserve Bank of Australia (RBA) Interest Rate Decision

The Reserve Bank of Australia (RBA) interest rate decision 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% in October.

Image of DailyFX economic calendar

It seems as though the RBA will retain the record-low rate throughout 2018 as ‘once-off declines in some administered prices in the September quarter are expected to result in headline inflation in 2018 being a little lower, at 1¾ per cent,’ and the central bank may merely attempt to buy more time even as Australian households and businesses face rising mortgage costs.

As a result, more of the same from Governor Philip Lowe & Co. may sap the appeal of the Australian dollar, but a material shift in the forward-guidance for monetary policy may spark a bullish reaction in AUD/USD if the RBA shows a greater willingness to move away from its accommodative stance. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

Impact that the 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

2018

09/04/2018 04:30:00 GMT

1.50%

1.50%

+36

-19

September 2018 Reserve 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) kept the official cash rate (OCR) at the record-low of 1.50% in September, with the central bank largely endorsing a wait-and-see approach for monetary policy as ‘household income has been growing slowly and debt levels are high.’ It seems as though the RBA will stick to the sidelines throughout the remainder of the year as ‘one ongoing uncertainty regarding the global outlook stems from the direction of international trade policy in the United States,’ and the central bank appears to be in no rush to alter the forward-guidance as ‘the low level of interest rates is continuing to support the Australian economy.

AUD/USD traded on a firmer footing even as the RBA stuck to the same script, but the reaction was short-lived as the exchange rate closed the day at 0.7174. 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 the exchange rate continues to track the downward trend from earlier this year, and the rebound from the 2018-low (0.7085) may continue to unravel over the coming days amid the failed attempt to push back above the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region.
  • Need a closing price below the 0.7170 (23.6% expansion) to 0.7230 (61.8% expansion) area to spur a run at the 2018-low (0.7085), which largely coincides with the Fibonacci overlap around 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement).

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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