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Aussie Dollar and RBA decision

Aussie Dollar and RBA decision

It seems to me that the biggest potential for an Aussie Dollar move tomorrow will come from what the RBA has to say about future easing bias rather than from the actual rate decision.Here's my logic.


The scene leading into the decision


30 day interest rate futures for March are trading at 2.12% implying about a 50% chance of a rate cut tomorrow. May futures are trading at 1.96% implying that the market is certain of a cut by May. It's even allowing for a small chance of 2 cuts by then. July Futures are trading at 1.825% implying certainty of one rate cut and  a 50% chance of a second cut by then

The other piece of information relevant to my logic is that after the last meeting, the Governor's statement was silent on the question of any future bias either towards cutting rates again or going back to a neutral setting.


Biggest potential for a market move


With this in mind, it seems to be that the two outcomes that would move the market most after tomorrow's meeting  are:

Bearish. The RBA cuts the rate to 2% AND indicates a bearish bias in the statement. This would mean a bigger probability of cuts below 2% than the market currently expects and would be bearish Aussie. It would also be a good momentum play from the RBA, building on recent improvements in consumer confidence and smacking the Aussie as hard as it can.

Bullish. The RBA leaves rates unchanged BUT the Governor's statement again says nothing to indicate any explicit future bias one way or the other. This would make the market less certain about a second rate and its timing. This type of outcome would likely see some support for Aussie Dollar.


More neutral outcomes


The 2 outcomes likely to have the smallest market impact would be:

Mildly bearish. There is a rate cut BUT the statement stays neutral. This could be mildly bearish and would no doubt create some more speculation about a cut below 2%. However, this would really be much in line with current expectations. The feeling would likely be that the RBA had gone with a proactive tactical approach, bringing the 2nd cut forward but there would be plenty of doubt about any move below 2%. In this scenario, changes to the market outlook for further rate cuts are likely to be much more dependent on future data including inflation.

Mildly bullish.There is no rate cut AND the statement has a clear easing bias. This outcome would be pretty close to current market expectations suggesting there is likely to be one more cut in the next couple of months. There may be a little initial disappointment on the announcement but that could be short lived depending on  the strength of the easing bias in the statement.


Aussie Dollar Chart Review


From a chart point of view, I am watching the channel formation that has now formed on the Aussie Dollar. The support level for this channel would coincide with an AB=CD move as indicated by the 100% Fibonacci measure on the 4 hour chart below. This cuts in around .7680. With this situation, one strategy approach is typically to buy if there is a bounce off the channel support

The other interesting possibility might be for the CD swing to be 127% of AB with price bouncing off the Fibonacci level about .7620. This could be useful for a head fake set up on a move just below the early February low. It's a fair way under where the market is today but with tomorrow's RBA meeting; a lot of local data later in the week and Non Farm Payrolls on Friday, it's worth having on the radar

!*!*! AUDUSD cash CFD 4 hour
Click to Enlarge

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