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Heads up, Aussie traders! The Reserve Bank of Australia (RBA) is prepping for its interest rate decision tomorrow so I made a quick lil’ trading guide for y’all to see.

What happened last time?

In the RBA’s rate statement last month, Governor Stevens sounded a tad more hawkish than usual as he scrapped the phrase on having scope for further easing. Market watchers took this to mean that the Australian bank ain’t likely to cut interest rates for the rest of the year.

Take note though that the statement came just a few days before the Australian parliamentary elections, which suggests that policymakers were probably reluctant to make any huge waves back then. After all, the election campaigns were very focused on the state of the economy, particularly in hiring and mining.

What’s expected this time?

This time around, the RBA is still expected to keep interest rates unchanged at 2.50%, as some improvements have been seen all over the Australian economy and even in China, its number one trade buddy.

However, some believe that policymakers could return to the dovish camp again and say that weak inflationary pressures and persistent economic risks could warrant a rate cut sooner or later. Note that the housing sector, led by the Housing Industry Association, is clamoring for further stimulus to boost mortgage demand and residential development.

How does AUD/USD usually react?

To get a clearer picture of how the pair behaves, let’s take a look at what happened in the last two monetary policy statements:

August 2013

Back in August, the RBA surprised the markets by cutting its rates by 25 basis points. What’s even more mind-boggling is that the RBA’s accompanying statement was dovish and yet AUD/USD still rallied after the release. Some say it’s because it signals that the RBA won’t cut its rates at its next meetings while some believe that the rally is due to the investors’ relief that rates weren’t cut by 50 basis points.

September 2013

AUD/USD’s price action was much easier to make sense of in the September rate statement. Despite the RBA’s dovish outlook, the central bank kept its rates steady at 2.50%. This was enough to boost AUD/USD to new intraday highs.

What we can get from the two scenarios above is that market expectations play an important role in AUD/USD’s price action. We also know that expectations for future releases can be a factor. If the RBA shifts back to a dovish stance, then AUD/USD could continue its selloff. On the other hand, a hawkish rhetoric could trigger a strong bounce.

Do you see the RBA cutting its rates in October?