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RBA Preview: AUDUSD Vulnerable to 25bp Rate Cut, Dovish Guidance

RBA Preview: AUDUSD Vulnerable to 25bp Rate Cut, Dovish Guidance

2019-10-01 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 drag on AUD/USD as the central bank is expected to cut the official cash rate (OCR) by 25bp to a fresh record-low of 0.75%.

Image of DailyFX economic calendar

Recent comments from RBA Governor Philip Lowe suggest the central bank will take additional steps to insulate the economy as inflation is expected to “remain below the midpoint of the target range for some time to come,” and the central bank may carry its rate easing cycle into 2020 as “financial markets are pricing in further reductions in the cash rate over the next year.

In turn, a 25bp rate cut along with a dovish forward guidance may produce a bearish reaction in AUD/USD as the Federal Reserveappears to be taking a more patient approach in managing monetary policy.

However, the RBA may stick to the sidelines amid “signs of a turnaround in established housing markets,” and more of the same from Governor Lowe and Co. may spark a bullish reaction in the Australia Dollar as market participants scale back bets for additional monetary support.

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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)

SEP

2019

09/03/2019 04:30:00 GMT

1.00%

1.00%

+20

+65

September 2019Reserve Bank of Australia (RBA) Interest Rate Decision

AUD/USD 5-Minute Chart

Image of audusd 5-minute chart

Source: Trading View

The Reserve Bank of Australia (RBA) kept the official cash rate (OCR) at the record-low of 1.00% in September, and it seems as though the central bank will stick to the sidelines after delivering back-to-back rate cuts as “recent labour market outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.

However, the RBA continued to strike a dovish forward guidance for monetary policy, with Governor Philip Lowe and Co. pledging to “ease monetary policy further if needed” amid the weakening outlook for global growth.

The Australian Dollar gained ground following the RBA meeting, with AUD/USD climbing above the 0.6700 handle to close the day at 0.6759. Learn more with the DailyFX Advanced Guide for Trading the News.

AUD/USD Rate Daily Chart

Image of audusd daily chart

Source: Trading View

  • Keep in mind, the AUDUSD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.6991), with the exchange rate marking another failed attempt to break/close above the moving average in July.
  • More recently, the rebound from the September-low (0.6688) appears to sputtered ahead of the 0.6910 (38.2% expansion) region, with the exchange rate at risk of exhibiting a more bearish behavior as it struggles to hold above the 0.6800 (61.8% expansion) handle.
  • As a result, the Fibonacci overlap around 0.6720 (78.6% expansion) to 0.6730 (100% expansion) remains on the radar, with a break of the 2019-low (0.6677) raising the risk for a move towards 0.6620 (100% expansion).

Additional Trading Resources

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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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