Trading the News: Reserve Bank of Australia Interest Rate Decision
What’s Expected:
Time of release: 04/02/2013 3:30 GMT, 23:30 EDT
Primary Pair Impact: AUDUSD
Expected: 3.00%
Previous: 3.00%
DailyFX Forecast: 3.00%
Why Is This Event Important:
A Bloomberg News survey shows all of the 28 economists polled anticipate the Reserve Bank of Australia (RBA) keeping the benchmark interest rate at 3.00%, and the neutral policy stance may spark a bullish reaction in the Australian dollar as market participants scale back bets for a rate cut. However, Governor Glenn Stevens may keep the door open to ease policy further amid the uneven recovery in the $1T economy, and the higher-yielding currency may come under pressure should the central bank head continue to embark on the easing cycle.
Recent Economic Developments
The Upside
| Release | Expected | Actual |
| Employment Change (FEB) | 10.0K | 71.5K |
| Consumer Inflation Expectations (MAR) | -- | 2.3% |
| Retail Sales s.a. (MoM) (JAN) | 0.4% | 0.9% |
The Downside
| Release | Expected | Actual |
| Private Sector Credit (YoY) (FEB) | 3.5% | 3.4% |
| Home Loans (MoM) (JAN) | 0.5% | -1.5% |
| Trade Balance (JAN) | -500M | -1057M |
The sharp pickup in employment along with the rebound in household spending may prompt the RBA to scale back its dovish tone for monetary policy, and the central bank may start to endorse a neutral policy stance amid the pickup in private sector activity. However, weakening trade conditions paired with the persistent slack in the real economy may encourage Governor Stevens to push the benchmark interest rate to a fresh record-low, and the central bank may continue to carry out the easing cycle in 2013 as the outlook for growth and inflation remains weak.
Potential Price Targets For The Rate Decision
As the AUDUSD struggles to push back above the 61.8% Fibonacci retracement from the 2011 high to low around 1.0430, we should see the pair hold steady ahead of the RBA, but we will maintain a bearish outlook for the aussie-dollar as long as it maintains the downward trend dating back to 2011. With the relative strength index capped by the 67 figure, the pair may face limited advances over the near to medium-term, and the AUDUSD may continue to give back the rebound from 2012 (0.9580) as it appears to have carved out a lower top just ahead of the 1.0500 region.
Trading the given event risk may not be as clear cut as some of our previous trades as the RBA keeps the cash rate on hold, but a less-dovish statement accompanying the rate decision could set the stage for a long Australian dollar trade as it dampens speculation for another rate cut. Therefore, if Governor Stevens sounds more upbeat this time around, we will need to see a green, five-minute candle following the decision to generate a long entry on two-lots of AUDUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to preserve our profits.