Trading Guide: RBA Interest Rate Decision

Are you ready to trade the RBA’s interest rate decision? Here are a couple of tips and tricks you could use for your Aussie trades!

What happened last month?

The Reserve Bank of Australia (RBA) kept its interest rates at a record-low of 2.50% and repeated that the Aussie is still “uncomfortably high.” Traders had already expected the decision as they believed that the RBA won’t cut rates until early 2014.

What’s expected this time?

Market players are expecting the central bank to drop its easing bias as the impact of its previous rate cuts take effect. Since the RBA last met in December we’ve seen improvements in the housing and retail sectors as well as building approvals and business conditions. Of course, it also doesn’t hurt that AUD/USD is down by a whopping 1,000 pips since late October 2013.

What were AUD/USD’s recent reactions?

audusd1

Like in the previous trading guide, AUD/USD was near an inflection point from the previous day before the report came out. The RBA’s “uncomfortably high” statement initially spooked the bulls but it soon found support when traders realized that it didn’t mean a rate cut. AUD/USD’s rally stalled near the US session open before it closed just below the day’s open price.

audusd2

AUD/USD’s December price action started as a copy of November’s chart except for the initial spike of the retail sales report. Unlike in November though, there was no reversal during the U.S. session as there was no catalyst to change investor sentiment.

Tips and Tricks

1. Consider trading against AUD/USD’s initial reaction. It’s a risky trade but, based on the last FOUR event charts, AUD/USD tends to reverse its moves a few hours after the report’s release.

2. Watch for a one-directional move until the U.S. session open. Unless there’s another news event that could affect the Aussie before the U.S. session, it looks like trading the mid-Asian session move could still get you pips. Just make sure that you have adjusted (if not closed) your trades before the U.S. reports come in!

3. A word of caution. The tendencies above are just that – tendencies. Expectations for this particular release are different from the previous ones so AUD/USD could always deviate from its usual reactions. Make sure you also consider other scenarios in your trading plans!