When is the RBA rate decision and how could it affect AUD/USD?

RBA overview

Early on Tuesday, the Reserve Bank of Australia (RBA) will announce its decision on interest rates at 2:30 pm AEST am in Sydney, Australia, 4:30 am GMT.

The Australian central bank is widely expected to offer the year’s second rate cut of 25 basis points (bps) to its official cash rate. As a result, the key interest rate will flash the record low of 1.0% in order to combat challenges emanating from the labor market and inflation statistics.

Market expectations

TD Securities spot Australia's overnight index swap (OIS) curve to highlight 65% chances of the rate cut being priced in whereas Reuters’ poll turns more pessimistic as it shows 20 of 38 surveyed economists see the chance of another cut to 0.75% by year-end.

Standard Chartered also holds a dovish bias towards the RBA when its report says:

We see the RBA cutting rates in July, November and December, taking the policy cash rate down to the likely terminal rate of 0.50%. We have expected the unemployment rate to spike in Q3-2019, necessitating RBA rate cuts, since mid-2018.

Analysts at Westpac say:

Governor Lowe has virtually promised a follow-up 25bp cut to another record low cash rate of 1.0% but hasn’t hinted whether the RBA prefers to act now or keep markets waiting another month. August of course brings the quarterly Statement on Monetary Policy with updated forecasts and ample opportunity to discuss the outlook. But Lowe has painted the case for lower rates as premised on a new view that the unemployment rate can fall to 4.5% or lower without stoking excess inflation. He appears not to be waiting for any new data or on developments such as trade talks. This leaves Westpac leaning towards a cut today but having sympathy with market pricing showing some uncertainty, around 80%.

How could the RBA decision affect AUD/USD?

With the dovish comments from the RBA Governor and sluggish data being in highlight despite latest US-China trade truce, markets brought forward expectations of a 25 basis point rate cut to July while major banks expect three rate cuts from the Aussie central bank.

The AUD, therefore, may pick up a strong bid if the RBA cuts rates as expected, but refrains from signaling an aggressive easing.

The Australian Dollar, however, may feel the pull of gravity if the policy statement signals aggressive easing, forcing markets to price in the possibility of rates falling to 0.75% by year-end.

Technically speaking, 100-day simple moving average (100-DMA), at 0.7034 now, acts as the key near-term resistance, pullback from which recently dragged the quote to 21-DMA support of 0.6948. Hence, major traders will be on the lookout of the break from 0.7034 – 0.6948 area with gradually rising 14-day relative strength index (RSI) biased bullish above 50.

Key Notes

AUD/USD: Bears catch a breath near 0.6970 as all eyes on RBA

AUD/USD Analysis: under pressure ahead of RBA

AUD/USD technical analysis: Aussie is trading below 0.6980 ahead of RBA

About the RBA rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.