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AUD/USD Vulnerable to Dovish Reserve Bank of Australia (RBA) Comments

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- Reserve Bank of Australia (RBA) to Keep Cash Rate at Record-Low of 1.50%. Will Governor Philip Lowe and Co. Continue to Endorse a Wait-and-See Approach for Monetary Policy?

- AUD/USD Snaps Bearish Sequence. Relative Strength Index (RSI) Stalls Ahead of Oversold Territory & Comes Up Against Trendline Resistance.

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

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The Reserve Bank of Australia (RBA) interest rate decision may generate a limited reaction as the central bank is widely expected to keep the cash rate on hold, but a batch of dovish comments may weigh on AUD/USD should the central bank tame bets for an imminent rate-hike.

Governor Philip Lowe & Co. may merely try to buy more time as 'f urther progress in reducing unemployment and having inflation return to target is expected ,' and the central bank may continue to endorse a wait-and-see approach for monetary policy as 't he Bank's central forecast for the Australian economy is for GDP growth to pick up, to average a bit above 3 per cent over the next couple of years. ' As a result, AUD/USD may continue to consolidate over the coming days, with the pair at risk for a near-term rebound as it snaps the series of lower highs and lows from the previous week.

However, the RBA may continue to curb expectations for higher borrowing-costs as 'i nflation is low, with both CPI and underlying inflation running a little below 2 per cent,' and the Australia dollar may face a more bearish fate should the central bank show a greater willingness to retain the record-low cash rate throughout 2018.

Impact that RBA rate decision has had on AUD/USD during the previous meeting

Period Data Released Estimate Actual Pips Change(1 Hour post event ) Pips Change(End of Day post event)
FEB2018 02/06/2018 00:30:00 GMT 1.50% 1.50% -31 +32

February 2018 Reserve Bank of Australia (RBA) Interest Rate Decision

AUD/USD 5-Minute Chart

AUD/USD 5-Minute Chart

The Reserve Bank of Australia (RBA) left the cash rate unchanged at its first meeting for 2018, and it seems as though the central bank will preserve the record-low rate throughout the foreseeable future as 't he low level of interest rates is continuing to support the Australian economy. ' The remarks suggest Governor Philip Lowe and Co. are in no rush to implement higher borrowing-costs as 'h ousehold incomes are growing slowly and debt levels are high,' and the central bank may continue to promote a wait-and-see approach for monetary policy as 'i nflation is likely to remain low for some time .'

The cautious remarks dragged on the Australian dollar, with AUD/USD dipping below the 0.7850 region, but the reaction was short-lived as the pair ended the day at 0.7905. Want More Insight? Sign up and join DailyFX Currency Strategist Ilya Spivak LIVE to cover the RBA rate decision.

AUD/USD Daily Chart

Want to know what other currency pairs the DailyFX team is watching? Download and review the Top Trading Opportunities for 2018.

  • Near-term outlook for AUD/USD is clouded with mixed signals as the pair snaps the bullish sequence from the previous week, while the Relative Strength Index (RSI) struggles to push into oversold territory and comes up against trendline resistance.
  • May see a bullish RSI trigger emerge as the near-term decline in AUD/USD appears to be stalling around the 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion) region, with the first topside hurdle coming in around 0.7850 (38.2% retracement) to 0.7860 (61.8% expansion).
  • Next region of interest comes in around 0.7930 (50% retracement) to 0.7940 (61.8% retracement) followed by 0.8030 (38.2% expansion).

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--- Written by David Song, Currency Analyst

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

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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