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G’day, forex mates! The Aussie might be the star of the show in the first half of the week with the RBA statement lined up on March 7th at 3:30 am GMT, so make sure you check out this trading guide if you wanna trade the event. As always, here’s a rundown of why the event is important, what happened before, what’s expected this time, and how AUD might react.

Why does the RBA statement matter?

For the newbies just tuning in, lemme give y’all an overview of interest rate decisions and their impact on forex price action. You see, central banks are in charge of maintaining price stability and ensuring that the economy performs well. To achieve these goals, they make use of their monetary policy tools such as interest rates or money supply.

When economic growth is weak and price pressures are low, policymakers usually resort to interest rate cuts or boosting liquidity in order to stimulate lending and spending activity. These actions or expectations of such tend to spur currency depreciation as lower rates mean lower returns for holding that country’s assets and an increase in money supply generally weighs on currency value.

As you’ve probably guessed, any hints from central bank officials on what kind of monetary policy action they might pursue next tend to get priced in by forex junkies. In other words, if policymakers suggest that they’re open to cutting rates further, bearish bets on the currency increase. On the other hand, if monetary authorities take a more hawkish stance or say that they’re done easing, currency bulls could charge.

What happened before?

In their February statement, the RBA decided to keep interest rates on hold at 1.50% as expected. The announcement was generally balanced, as Governor Lowe acknowledged recent improvements in the global and domestic economy but also cited that uncertainties remain, particularly when it comes to hiring and inflation.

RBA officials downplayed the recent disappointment in Q3 2016 data, saying that temporary factors were responsible for the drag and that growth could rebound in Q4. True enough, last quarter saw an expansion of 1.1% versus the projected 0.7% growth figure, which could keep the Land Down Under on track towards reaching the RBA’s projection of 3% annual growth over the next couple of years.

The Australian central bank also pointed out that labour market indicators remained mixed across the country and that subdued wages are likely to keep a lid on inflationary pressures in the near-term. As usual, RBA head Lowe turned the spotlight on how the Aussie’s depreciation since 2013 has helped the economy transition from the mining boom but warned that  “an appreciating exchange rate would complicate the adjustment.”

What’s expected this time?

This time around, RBA officials could turn the upbeat vibe down a notch as developments haven’t been all that great over the past few weeks, most notably its trade balance which indicated a much smaller than expected surplus of 1.30 billion AUD versus the consensus at 3.82 billion AUD and the earlier 3.33 billion AUD figure. Components of the report reflected a sharp 3% fall in exports, erasing a chunk of the 5% gain seen in the previous month, and Governor Lowe might take this as an opportunity to blame AUD strength.

Construction work done and private capital expenditure for the previous quarter also printed downside surprises as businesses didn’t seem to be in the mood to make big purchases towards the end of the year. Meanwhile, underlying figures from the jobs report revealed that the strong results were merely boosted by part-time hiring while the number of full-time workers actually fell.

On a less downbeat note, the January jobs report printed a reduction in the unemployment rate from 5.8% to 5.7% to show that some slack is being absorbed. Quarterly company operating profits, GDP, and building approvals also beat expectations while the freshly released retail sales report came in line with estimates of a 0.4% uptick.

How might the Aussie react?

Last month, the relatively upbeat RBA statement allowed AUD pairs to pop higher during the Asian session and squeeze out a few more gains before London traders woke up. By the looks of it, not all forex market participants were buying the RBA’s optimistic stance, thinking that Lowe and his fellow policymakers are overestimating the impact of higher commodity prices on Australia’s exports and non-mining investments.

AUD 5-min Forex Charts
AUD 5-min Forex Charts

If the RBA head honcho admits that they make have been too cheery last time and decides to focus on the potential headwinds to the Australian economy, Aussie pairs could stand to lose more ground. Note that Fed rate hike expectations are also strongly in play, and this monetary policy tightening action could dampen global demand for commodities and bring risk aversion back in play.