Looking for a news report to trade this coming week? Look no further than the Reserve Bank of Australia rate statement coming out at 4:30 am GMT on Tuesday!
But first, a short recap of what’s happened the past two rate statements.
During the May statement, the RBA shocked the markets by cutting rates by 25 basis points, bringing them down to 2.75%. According to RBA Governor Glenn Stevens, the rate cut was appropriate given the slow pace of economic progress. The hope was that by shifting towards a more accommodative monetary policy, it would make it easier for the RBA to hit its inflation target of around 2-3%.
In June, Stevens kept rates steady, but he did acknowledge that inflationary pressures remained subdued. How was this taken by the markets? As a sign that the RBA may cut rates again, of course!
That’s what makes this upcoming statement so intriguing!
Just take a look at the recent slew of data that directly and indirectly affect Australia:
- Retail sales growth : Predicted 0.3%, Actual 0.2%
- Gross Domestic Product Growth: Predicted 0.8%, Actual 0.6%
- Trade Balance: Predicted 180M AUD surplus, Actual 28M AUD surplus
- Chinese PMI – Predicted 50.0, Actual 49.2
Keep in mind that all this data was released over the past month. Could this be enough for the RBA to hit the markets with another rate cut?
Here’s my take on the three potential scenarios and their effects on AUD/USD:
Rate hike: Who we kidding. This ain’t happening.
Hold rate steady: Expectations are that rates will remain steady at 2.50%. Should this happen, I think we can just expect to hear more dovishness from the RBA, with them acknowledging weakness both on the domestic and international fronts. Depending on the tone of the statement, we could see AUD/USD break to new lows around .9100.
Cut rates: All hell may break loose. I’m thinking a drop to around .9000, with potential for even lower lows. Just don’t expect a 1,000 pip drop over two months like what we saw these past two months. Keep in mind that this time, a rate cut is slowly being priced into the markets. Secondly, we’re entering the summer season now and liquidity will die down, so we probably won’t see as strong trends as we have been seeing.
What do y’all think? Hit me up with some comments below!