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Reserve Bank of Australia (RBA) Rate Cut to Rattle AUDUSD Rebound

Reserve Bank of Australia (RBA) Rate Cut to Rattle AUDUSD Rebound

2019-07-02 03:30:00
David Song, Currency 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 rattle the recent rebound in AUDUSD as the central bank is expected to reduce the official cash rate (OCR) to a fresh record-low of 1.00%.

Image of DailyFX economic calendar

The RBA is anticipated to lower the cash rate by another 25bp in July despite the trade truce between the US and China, Australia’s largest trading partner, as Governor Philip Lowe insists that “the Board seeks to wind back spare capacity in the economy and deliver inflation outcomes in line with the medium-term target.

In turn, a reduction in the OCR along with a dovish forward guidance may curb the recent rebound in AUDUSD, with the Australian dollar at risk of facing additional headwinds over the near-term as Governor Lowe states that “the possibility of lower interest rates remains on the table.

However, a more bullish scenario may arise for the Australian dollar should the RBA keep the benchmark interest rate at 1.25%.

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Impact that the RBA interest rate decision had on AUD/USD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUN

2019

06/04/2019 04:30:00 GMT

1.25%

1.50%

+6

+18

June 2019 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) cut the official cash rate (OCR) by 25bp to a fresh record of 1.25% in June, with the central bank stating that “today's decision to lower the cash rate will help make further inroads into the spare capacity in the economy.

It seems as though the RBA will continue to change its tune over the coming months as “recent inflation outcomes have been lower than expected,” but Governor Philip Lowe and Co. appear to be in no rush to reestablish a rate easing cycle as “the central scenario remains for the Australian economy to grow by around 2¾ per cent in 2019 and 2020.

The Australian dollar held its ground despite the 25bp rate cut as the RBA shows limited interest in delivering a back-to-back rate cut, with AUDUSD consolidating throughout the day to close at 0.6991. Learn more with the DailyFX Advanced Guide for Trading the News.

AUD/USD Rate Daily Chart

Image of audusd daily chart

  • Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7100), with the exchange rate marking another failed attempt to break/close above the moving average in April.
  • In turn, AUD/USD remains at risk of giving back the rebound from the 2019-low (0.6745) as the wedge/triangle formation in both price and the Relative Strength Index (RSI) unravels.
  • However, lack of momentum to hold above the 0.7020 (50% retracement) pivot has pushed AUDUSD back towards the 0.6950 (61.8% expansion) to 0.6960 (38.2% retracement) area, with the next downside region of interest coming in around 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement)

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--- Written by David Song, Currency Strategist

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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