The Reserve Bank of Australia (RBA) is starting the brand spankin’ new forex trading month by printing its policy decision! What’s expected of the central bank this time around?
Why should I trade this event anyway?
Good question, my young padawan. Forex traders tend to listen to central banks like the Reserve Bank of Australia (RBA), mostly because they’re the big bosses of interest rates and local money supply.
Hints of easy policies usually mean that the economy is in trouble, at least enough to need some boosting (yikes!) or lower interest rates (double yikes!). Meanwhile, hints of hawkish policies could mean higher interests for holding local currencies (yay!) and that the economy is in good enough shape to reduce government stimulus (double yay!).
What did the RBA say last time?
For the ninth month in a row, Glenn Stevens and his gang had decided to keep interest rates to a record low of 2.00%. Details also reveal that the central bankers were feeling a bit confident over the economy’s growth and inflation prospects.
In its statement, the RBA expressed its optimism over the continued expansion in non-mining investments even as contraction in mining-related activities persisted. It also highlighted that business, lending, and employment conditions remain robust, at least enough to not cause concerns for the voting members. Lastly, RBA had also dropped any comments about the Aussie being “too high.” In fact, the only issues that the RBA thought needed close monitoring were the persistence of low oil prices, China’s weak growth prospects, and the increased volatility in the global equities markets.
Overall the RBA adopted a wait-and-see vibe, as they kept their “low inflation provides scope for further easing” rhetoric while the members wait for the impact of low oil prices and volatile global equities markets on the Australian economy.
What’s expected this time?
Since the last RBA decision the Aussie has gained a bit more across the charts and the unemployment rate has popped up from 5.8% to 6.0%. Most market players aren’t worried though, and are still expecting the central bank to keep its rates steady for another month.
For starters, the increase in oil prices from the last policy decision could support the slight strengthening of the Aussie. In addition, the outlook for China’s economy and the volatility in the global equities markets have stabilized in the past few weeks. Last but not the least, the uptick in the unemployment rate could be attributed to seasonal trends and isn’t expected to cause too much ruckus on the employment sector’s uptrend estimates.
How might AUD/USD react?
Unfortunately for Aussie bulls, the bears zeroed in on the RBA’s concerns over China and the volatility in the global equities markets. It also didn’t help that oil prices took another dive on the same day. AUD/USD ended up falling from its .7129 session high to close the day at .7050. Yeouch.
If the RBA decides that the external factors (oil, China, equities) continue to pose threats to the economy, or that the Aussie’s levels are back to being “too high,” then we might hear a more cautious tone from the central bank and look at another weak day for the Aussie.
On the other hand, the RBA could continue to adopt its optimistic tone and shrug off the recent Aussie strength and jump in unemployment rate. It could also emphasize improvements in non-mining sectors, inflation, or highlight the improvements in oil and global equities markets since its last meeting. If this is the case, then the high-yielding comdoll could erase most of its losses from last week and continue with its slow and steady uptrend across the board.
What do you think? Will the RBA keep its optimistic tone or adopt a more cautious one this month? Read my recent snapshot of the Australian economy if you want to be more prepared for trading the event!