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AUD/USD Higher As Market Eyes RBA Interest Rate Decision

AUD/USD Higher As Market Eyes RBA Interest Rate Decision

Jimmy Yang,

THE TAKEAWAY:Australia trade balance and house prices improve > Positive data unlikely to have affected RBA rate cut expectations > Market to weigh RBA rhetoric > AUD/USD Higher

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The Aussie remained relatively flat against the US Dollar as a slew of Australian economic data came across the wires. Trade balance in June missed estimates with a 602 million reading but was an improvement over May’s revised 507 million. This also represents the most favorable trade data since December 2011. Improvements in housing prices complemented the release with quarter-over-quarter and year-over-year price changes that beat expectations with a 2.4 and 5.1 percent increase respectively. However, the market seems unlikely to have reacted to the data.

Instead, the Aussie continued its rally that began at around 1:40 GMT, likely hinting at investors taking off risk ahead of the Reserve Bank of Australia’s interest rate decision at 4:30 GMT. At the time of this writing, AUD/USD is trading at 0.89208 and swaps are currently pricing in market certainty for a rate cut.

Because expectations are so heavily priced in, such a move may not be as market-moving as rhetoric suggesting the central bank’s forward guidance. A dovish tone that maintains the RBA’s scope for further easing could lower the appeal of the currency to yield-seeking investors and move the pair lower. However, if the reserve bank sees an improved outlook for the economy, expectations for prolonged easing could be reduced, moving AUD/USD higher. Commentary perceived to be ambiguous could amplify the role of domestic economic data in fueling expectations for RBA policy.

Chinese output data will likely remain influential for the pair as they serve as proxies to gauge the health of Australian exporters. Figures suggesting another slowdown could lead investors to speculate on further easing efforts by the RBA to encourage growth, moving the pair lower. Conversely, positive numbers could move the pair in the opposite direction.

AUD/USD (5-Minute Chart)

AUDUSD_Continues_Higher_Ahead_of_RBA_Interest_Rate_Decision_______body_Picture_1.png, AUD/USD Higher As Market Eyes RBA Interest Rate Decision

Source: FXCM Marketscope

Jimmy Yang, DailyFX Research Team

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