3 Things to Remember When Trading the RBA Decision

Heads up, Aussie traders! The Reserve Bank of Australia is scheduled to announce its monetary policy decision on October 4, 3:30 am GMT so this could be your chance to make pips from a top-tier market catalyst. Here are some things to keep in mind if you plan on trading this event.

1. We’ve got a new RBA Governor!

In case you missed it, former RBA head honcho Glenn Stevens already passed the baton to Governor Philip Lowe last September 18 so we’ve got a new guy calling the shots now. Well, not exactly “new”… Lowe has actually been with the RBA since the mid-1980s and has had stints in several of its departments such as Economic Research, Financial Stability, Domestic Markets, and Economic Analysis.

Lowe became Stevens’ second-in-command as Deputy Governor in 2009, which means that he represents continuity and stability for the central bank in terms of leadership. Although most market participants see his biases as consistent with the RBA’s current stance, don’t forget that Lowe isn’t one to shy away from expressing more controversial views, particularly when it comes to keeping asset bubbles in check during a low-inflation environment, and from jawboning the Australian dollar.

2. RBA minutes were less dovish last time.

The latest RBA minutes turned out to be a bit of a surprise, as it revealed that the central bank was no longer as dovish as it used to be. Even though policymakers decided to just sit on their hands during the September rate statement, the transcript of their huddle suggested that they might refrain from cutting rates in the foreseeable future.

For one, the RBA noted that economic growth has been in line with their expectations, which could mean that they’re not too worried about the slowdown in both mining and non-mining investment. Apart from that, RBA officials also seem to be taking the decline in full-time employment in stride.

However, it’s also worth noting that the RBA mentioned that “indicators for the housing market had also generally pointed to weaker conditions than a year earlier,” which basically suggests that they could have room to lower interest rates without fussing about a property bubble.

3. Australian economy seems to be in poor shape.

In my latest Economic Snapshot for Australia, the numbers came in mostly in the red for business conditions and consumer spending. Keep in mind that a bunch of these reports were printed after the RBA’s monetary policy meeting last month so there’s a chance they haven’t factored these downbeat figures in their assessment and outlook.

To top it off, both employment and inflation have been consistently deteriorating, not exactly painting a rosy longer-term picture for the Australian economy. On a less downbeat note, the Chinese economy appears to be holding its own, at least based on the politicized government’s PMI readings, so this could keep the RBA’s hopes up for better economic conditions in the coming months.


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