The big event for Aussie traders has come and gone, and it looks like the bears are sitting pretty after the Reserve Bank of Australia cut the official cash rate by 25 bps to a historical low of 0.75%. This change was expected, so what likely moved traders into sell mode after the announcement was comments that it was “reasonable to expect that an extended period of low interest rates will be required,” suggesting the RBA is “prepared to ease monetary policy further.”
So with more rate cuts now expected to come, it’s no surprise that this was priced in immediately into the Aussie, sending it lower against most the majors and without a recovery in sight before the end of the trading session. This was positive for both my AUD/CAD and AUD/USD short positions as seen below:
AUD/USD Back to the Downtrend?
Last week, with the RBA approach in in days, I decided to reduce the risk on my small position on AUD/USD, which I entered at market (0.6828) with 0.25% max risk. This was a nibbler position that paired with another short order at 0.6875, which was never triggered. I rolled down my stop to just below break even at 0.6820 and close my open short order at 0.6875 to pretty much create a risk-free trade to play my short bias on the Aussie.
Fortunately for me, the RBA did cut interest rates as discussed above and AUD/USD was taken all the way down to my max target at 0.6700 to close out my position for profit:
Total: +128 pips / +0.225% gain on 0.25% risk
A nice return-on-risk for roughly twos week’s worth of holding time, but because I started with tiny nibbler positions, it wasn’t a large net gain. Overall, I’m happy with how the trade went, with exception to not being bigger on the trade to begin with.
Downtrend Bounce in AUD/CAD?
In my last update on my AUD/CAD short position, I decided to lock in further gains by closing a little over half of my position manually at market (0.8961) and rolling down my stop to 0.9070, which was just above my average entry price. This adjustment locked in a 0.34% gain on 1.00% risk, which is not bad to walk away with if the market flipped sentiment on AUD/CAD after the RBA meeting.
Again, fortunately the market went my way after the RBA interest rate decision, pushing AUD/CAD lower to break the 0.8900 barrier that held off the bears back in August.
With the market now trading around 0.8860 (and currently gained 0.98% on 1.00% risk) and expectations of selling pressure for the Aussie in the medium to longer-term time horizon, I’ve decided to keep this trade on, but I want to reduce my risk further while maximizing my potential gain. Here’s what I did:
- Rolled stop lower on remaining position to 0.8980 from 0.9070
- Rolled max target down to 0.8700 from 0.8820
This adjustment basically locks in a profit of 0.62% on my original 1.00% max risk (0.9:1 R:R) as the worst case scenario. I increased my max profit back up to 1.5:1 (max profit reduction after closing half the position in September), but I may further add to this position/roll the max target lower if the downtrend momentum remains strong on this pair. And looking forward, unless the upcoming data from Canada surprises with lots of weakness, the probability remains favorable that the downtrend in AUD/CAD may continue. But as always, I’ll stay on my toes, ready to adjust if the driving market themes change.
Stay tuned for that update and let me know what you’re doing in the Aussie with all of this volatility lately. Would love to hear your thoughts below in the comments section!