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Trading News Report

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RBA Rate Decision

Mon, Aug 4 2008, 10:49 GMT
by Daily FX Research Team

DailyFX

What’s Expected

• Time of release: 08/04/2008 04:30 GMT, 00:30 EST
• Primary Pair Impact : AUDUSD
• Expected: 7.25%
• Previous: 7.25%

How To Trade This Event Risk

The RBA rate decision will present significant event risk for the AUDUSD. The central bank is expected to hold rates steady at the 12 year high of 7.25%, but price action over the last three releases has been based on the subsequent commentary. This release should follow suit as the MPC is battling slowing growth and rising inflation and haven’t set a clear long-tem direction. Therefore, if the central bank leaves the benchmark rate unchanged then traders will focus on the comments from Governor Glenn Stevens to take their cue. The past three decisions were followed by comments that were more hawkish than expected. However, inflation concerns may be outweighed by the slumping economy. Retail sales fell 0.1% in June as credit costs and diminishing purchasing power continue to weigh on consumers. Additionally, price pressures appear to be easing with oil below $124 and the TD Securities Inflation gauge easing to 4.6% from 4.8%. Therefore, a surprise cut from the RBA is well in the scope of possibility with the downside risk accelerating as the global economy slows. Indeed, the overnight index swap curve is pricing in 75 basis points in cuts over the next 12 months, which is a significant reversal from June when it was still pricing in a rate hike.

The rebound in the labor market, which added 19,700 jobs in June and consumer inflation expectations remaining at 5.9% could give rise to wage inflation Additionally, surging exports saw the trade deficit narrow to the lowest level in 14 months, signaling that growth continues to remain strong. A rate hike or a hold with bullish commentary would be enough to trigger a long trade. We will look to go long two lots of AUDUSD after a five minute green candle is closed. The initial stop will be set at the nearby swing low or reasonable distance and the first target will equal risk. The second target will be discretionary and the second lot’s stop should be moved to breakeven when the first takes profit.

The Australian dollar has been trading heavy as speculation grows that the RBA will begin an prolonged easing policy . A surprise rate cut could send the Australian dollar below its 200 Day SMA at 0.9203. For a AUD/USD short would use the same strategy as above, just in reverse.

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Published on  Mon, Aug 4 2008, 10:56 GMT