Forex Trading Guide: RBA Interest Rate Decision

Are y’all ready to take on the top-tier economic happenings this week? First up is the RBA interest rate decision so here’s my forex trading guide for the event.

Why is this event important?

If you’ve been paying attention in our School of Pipsology and not dozing off during the Fundamental Analysis lesson, you’d know that central bank events are a huge deal because these directly involve monetary policy and interest rate expectations. During this rate decision, the RBA is also set to announce its economic assessment and outlook for Australia, which could influence traders’ long-term bias for the Australian dollar.

What happened last time?

In the RBA’s previous monetary policy statement, Governor Stevens and his men decided to keep interest rates on hold at 2.50% and announced that they plan to maintain a “period of stability” in rates. Stevens also highlighted improvements in housing and hiring, but also mentioned that the government’s budget cuts could weigh on overall growth. When it comes to the Aussie’s value, he reiterated that the currency “remains high by historical standards” and that this might do more damage on commodity prices.

What’s expected this time?

RBA policymakers already laid out their plans to keep interest rates on hold for much longer so no rate changes are expected in their upcoming policy announcement. Of course traders will still be all ears on Governor Stevens’ accompanying statement, as this might contain more clues on what the RBA’s next moves might be. Stronger emphasis on threats to economic performance, such as falling commodity prices or government spending cuts, could lead to AUD weakness while upbeat remarks concerning the recent pickup in China’s manufacturing industry might provide support for the Aussie.

How might AUD/USD react?

Despite the cautious remarks during the previous RBA rate decision, AUD/USD still rallied after the event as the actual statement wasn’t as dovish as many expected. Check out my forex review of the June RBA statement and how the pair reacted:

AUD/USD 15-min Forex Chart

AUD/USD 15-min Forex Chart

Take note though that the reaction lasted by roughly 30 pips only, as price turned upon hitting the .9280 levels and retreated during the London and New York trading sessions. If you’re brave enough to trade the news, you could go for a small profit target and exit the trade before the Asian session closes. Another option to play this would be to fade the initial reaction during the latter trading sessions.

Of course AUD/USD’s movement still depends on what actually happens during the RBA statement so it would be best to get your hands on the latest market updates before taking any trades. Make sure you swing by my buddy Pip Diddy’s regular forex session recaps then!

How do you think the RBA statement will turn out? Share your thoughts in our comment box or cast your votes in our poll below!