On Tuesday, August 7, 2012, our mates over at the Reserve Bank of Australia will be announcing their latest interest rate decision. Word on Ayers Rock is that after cutting interest rates last June 5 - the fourth rate cut since November 2011 - the central bank will once again keep rates steady at 3.50%.
No real surprise here, as recent data suggests that the slew of cuts seem to have had a positive effect on the Australian economy.
Retail sales have been on the rise the past couple months, rising 0.8% and 1.0% in May and June respectively. Exports also dropped for the first time in four months, indicating that domestic demand is playing its part in the economy's good performance.
The housing market has been on an absolute year this past quarter as well.
Building approvals surged by an impressive 27% in May, while new home sales grew by 2.8% in June. Meanwhile, housing prices rose by 0.5% last quarter, marking the first quarter-on-quarter increase in over five months. This set of good data implies that the successive rate cuts have been getting the job done in terms of attracting buyers to the housing market.
The relatively good performance of the Australian economy and its growth prospects are just one of the reasons why the Aussie has been burning up the charts.
Now normally, a RBA rate decision is a heavily watched event and can cause a spike in volatility in AUD/USD, at least during the Tokyo session. With no rate change expected, we might not see much movement but I do think that traders will still be interested to see what the RBA has to say in its accompanying statement.
At the last interest rate decision on July 3, the RBA acknowledged that the domestic economy was doing much better, it was cited that rate cuts helped the Australian economy overcome risks in the U.S. and Europe.
For this month, I suspect that we could see a more upbeat tone, especially since the housing market has improved steadily over the past quarter. We could also see the RBA acknowledge improvements in the Chinese manufacturing sector that could also support the Australian economy. This could give the Aussie a temporary boost during the Tokyo session.
On the other hand, the RBA could express growing concerns about the state of the global economy and more specifically, single out the euro zone debt crisis. The central bank may very well take a more cautious approach and hint that further rate cuts aren't out of the question. Take note that at the height of the financial crash, rates were as low as 3.00% in 2009!
If you love trading the Aussie, then this is one economic event that you can't miss! If you happen to have any positions open, be sure to double check those stop loss orders and practice good risk management techniques!
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