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AUD/USD Rate Rebound Vulnerable to Wait-and-See RBA Policy

AUD/USD Rate Rebound Vulnerable to Wait-and-See RBA Policy

David Song, Strategist

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

The Reserve Bank of Australia (RBA) interest rate decision may rattle the recent rebound in AUD/USD as the central bank is anticipated to hold the official cash rate (OCR) at the record-low of 1.50% in November.

Image of DailyFX economic Calendar

It seems as though the RBA will carry the wait-and-see approach into 2019 as ‘growth in household income remains low and debt levels are high,’ and the central bank may continue to tame bets for higher borrowing-costs as ‘the low level of interest rates is continuing to support the Australian economy.

In turn, more of the same from the RBA may drag on the AUD/USD especially as the Federal Reserve sticks to its hiking-cycle, but a material shift in the forward-guidance may trigger a bullish reaction in the Australian dollar should Governor Philip Lowe & Co. show a greater willingness to implement a rate-hike over the coming months. 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)

OCT

2018

10/02/2018 04:30:00 GMT

1.50%

1.50%

-15

-40

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

AUD/USD 5-Minute Chart

Image of audusd 5-minute chart

The Reserve Bank of Australia (RBA) stuck to the sidelines in October, with the central bank keeping the official cash rate (OCR) at the record-low of 1.50% as ‘the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.’ It seems as though the RBA will retain the wait-and-see approach throughout the remainder of the year as ‘growth in household income remains low and debt levels are high,’ and the central bank may continue to strike a cautious tone going into 2019 as ‘one ongoing uncertainty regarding the global outlook stems from the direction of international trade policy in the United States.

The RBA meeting spurred a limited reaction, with AUD/USD struggling to hold its ground as the exchange slipped below the 0.7200 handle to close the day at 0.7188. 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, with the failed attempt to test the September-high (0.7315) undermining the advance from the 2018-low (0.7085).
  • Nevertheless, recent developmentsinstill a more constructive view for AUD/USD as the exchange rate closes above the 50-Day SMA (0.7159) for the first time since June, with the Relative Strength Index (RSI) also highlighting a change in behavior as the oscillator snaps the bearish formation from earlier this year,
  • In turn, a close above the 0.7230 (61.8% expansion) region raises the risk for a move back towards 0.7320 (50% expansion) to 0.7340 (61.8% retracement), with the next hurdle coming in around the 0.7400 (38.2% expansion) handle.

Additional Trading Resources

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Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

--- 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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