AUD/USD Shorts at Risk Amid Growing Bets for RBA Rate Cut

Trading the News: Reserve Bank of Australia (RBA) Interest Rate Decision

The near-term rebound in the AUD/USD may gather pace over the next 24-hours of trade should the Reserve Bank of Australia (RBA) continue to highlight a period of ‘interest rate stability’ in the $1T economy.

What’s Expected:

Why Is This Event Important:

Despite growing speculation for a rate cut, RBA Governor Glenn Stevens may endorse a neutral tone for monetary policy, but the central bank head may continue to jawbone the Australian dollar in order to further assist with the rebalancing of the real economy.

Expectations: Bullish Argument/Scenario

Release	Expected	Actual
Consumer Price Index- Trimmed Mean (YoY) (4Q)	2.2%	2.2%
Employment Change (DEC)	5.0K	37.4K
Trade Balance (NOV)	-1600M	-925M

Sticky inflation paired with the pickup in job growth may encourage the RBA to preserve its forward-guidance for monetary policy, and the aussie-dollar may continue to retrace the decline from the beginning of the year should Governor Steven talk down bets for a rate cut.

Risk: Bearish Argument/Scenario

Release	Expected	Actual
Retail Sales (MoM) (NOV)	0.2%	0.1%
Home Loans (MoM) (NOV)	1.7%	-0.7%
Gross Domestic Product s.a. (QoQ) (3Q)	0.7%	0.3%

However, fears of a slower recovery may prompt the RBA to implement a more dovish twist to the forward-guidance, and the Australian dollar may face additional headwinds over the near-term should the central bank show a greater willingness to revert back to its easing cycle.

How To Trade This Event Risk

Bullish AUD Trade: RBA Continues to Endorse Period of Interest Rate Stability

• Need green, five-minute candle following the rate decision for a potential long AUD/USD trade
• If market reaction favors a long aussie trade, buy AUD/USD with two separate position
• Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to breakeven on remaining position once initial target is met, set reasonable limit

Bearish AUD Trade: Governor Stevens Sees Scope for Lower Borrowing-Costs

• Need red, five-minute candle to consider a short AUD/USD position
• Carry out the same setup as the bullish aussie trade, just in reverse