AUD/USD Rebound Vulnerable to RBA Verbal Intervention

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- Reserve Bank of Australia (RBA) to Keep Cash Rate at 2.50% for 15-Consecutive Meetings.

- Will RBA Governor Glenn Stevens Toughen the Verbal Intervention on Aussie

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

The Reserve Bank of Australia’s (RBA) interest rate decision may prompt another near-term decline in AUD/USD should the central bank toughen the verbal intervention on the local currency.

What’s Expected:

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Why Is This Event Important:

The slowdown in China – Australia’s largest trading partner – may become a growing concern for the RBA amid the weakening outlook for global trade and Governor Glenn Stevens may implement a more aggressive approach to weaken the Australian dollar in an effort to further assist with the rebalancing of the real economy.

Expectations: Bearish Argument/Scenario

Subdued wage growth along with the ongoing deterioration in home affordability may push the RBA to adopt a more dovish tone for monetary policy and AUD/USD may face another near-term decline should we see a growing number of central bank officials show a greater willingness to revert back to an easing cycle.

Risk: Bullish Argument/Scenario

However Governor Stevens may sound more upbeat this time around amid the pickup in job growth paired with the rebound in private consumption and the AUD/USD may face a larger rebound over the next 24-hours of trade should the fresh batch of central bank rhetoric boost interest rate expectations.

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How To Trade This Event Risk(Video)

Bearish AUD Trade: RBA Favors Further Depreciation of Australian dollar

• Need red five-minute candle following the policy statement for a potential short AUD/USD trade
• If market reaction favors a bearish aussie trade sell AUD/USD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to breakeven on remaining position once initial target is met set reasonable limit

Bullish AUD Trade: Governor Stevens Softens Dovish Tone for Monetary Policy

• Need green five-minute candle to consider a long AUD/USD position
• Carry out the same setup as the bearish aussie trade just in reverse

Read More:

Central Banks in Focus this Week as RBA ECB Meet NFPs on Friday

EURUSD Falls on Better Than Expected ISM Manufacturing

Potential Price Targets For The Release

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

• Long-term approach favors selling-bounces as the bearish RSI momentum remains in play
• Interim Resistance: 0.8710 (78.6% retracement) to 0.8730 (23.6% expansion)
• Interim Support: 0.8390 (78.6% expansion) to 0.8410 (100% expansion)

Impact that RBA interest rate decision has had on AUD during the last release

November 2014 Reserve Bank of Australia (RBA) Rate Decision

As expected the Reserve Bank of Australia (RBA) kept the cash target rate at a record-low of 2.50% in November in an effort foster a stronger recovery. Indeed Governor Glenn Stevens continued to highlight a neutral tone for monetary policy as the central bank head favors a period of interest rate stability but the Australian dollar remains at risk for a further decline as the RBA argues that the local currency remains overvalued. Despite the initial push higher there was limited follow-through behind the market reaction as AUD/USD ended the day at 0.8731.

--- Written by David Song Currency Analyst and Shuyang Ren

To contact David e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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