AUD analysis: RBA Rates decision tomorrow - the perfect storm for a short?

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At 0330 GMT tomorrow (Tuesday 3rd Feb 2015) The Reserve Bank of Australia (RBA) will announce the official Cash Rate at it's first board meeting for the year. Whilst other major central banks have slashed their rates over the previous few years, some even to negative rates, the RBA has maintained the official rate at 2.5% since September 2013.

The Aussie has been in freefall since early September 2014 and has recently managed to find good support around the 0.7700 mark, with resistance around the 0.7825 to 0.7900 level. A review of major brokers shows around 60% of retail traders are currently LONG on the AUDUSD. As such, a solid break below the support at .77 may trigger a wave of stop loss orders.

Adding fuel to the fire, only 6 major economists are predicting a rate cut at tomorrows RBA board meeting, while 21 are betting on rates remaining on hold for the time being. A cut by the RBA tomorrow, earlier than the market expects, is likely to weigh heavily on the AUD. A break below the 0.77 level could see downside targets from 0.75 to as low as 0.71.

 

Some factors pointing to a RBA rate cut tomorrow:

  • Although the latest official figures show Australia's unemployment rate falling, the Reserve Bank's preferred measure (quarter averages) shows it continuing to climb to a current figure of 6.2 per cent
  • Since it last met, the annualised pace of growth has slipped from 3.6 per cent to 1.6 per cent in the space of six months
  • The bank's previous forecast of rising economic growth published in November is now regarded as out of date and will be revised when new forecasts are issued on Friday.
  • Neither consumer nor business confidence has lifted since the Federal Budget
  • Inflation provides no impediment to cutting rates. The headline rate is now just 1.7 per cent after the collapse in oil prices. Since the oil price collapse, economic growth has weakened, and the steam has gone out of inflation
  • Rapidly falling commodity prices - the fuel in Australia's fire
  • Housing demand is starting to taper, despite the historically low interest rate environment
  • Australian 10-year yields are trading at record lows

Canada has just cut its cash rate to 0.75 per cent. Denmark has just cut its rate to minus 0.5 per cent. The United States is keeping its rate at 0.25 per cent. An Australian cash rate maintained at 2.5 per cent in the face of these moves would give the dollar support the bank would prefer it not to have.


Sources:

http://www.efxnews.com/story/27766/rba-cut-rates-week-sell-audusd-barclays

http://www.marketpulse.com/20150201/audusd-enjoys-support-0-77/ 

http://www.watoday.com.au/business/weak-economy-set-to-spur-reserve-bank-cash-rate-cut-on-tuesday-20150201-132rz2.html 

RBA To Cut Rates This Week; Sell AUD/USD - Barclays
  • www.efxnews.com
Investors following tactical strategies should consider selling AUD/USD into the RBA meeting this week, advises Barclays Capital in its weekly FX pick to clients. The trade is macro-technical driven. On the macro-side, Barclays' rationale is as follows: "We expect the RBA to cut 25bp this week. The market is divided with six economists...
 

50/50 chance leave on hold or cut I think. Either way - there's going to be volotility. After journalist "rates whisperer" Terry McCrann spoke last week his prediction markets have priced in 0.15 rate cut..

Terry McCrann Exclusive
Terry McCrann Exclusive
  • Australian News Channel Pty Ltd
  • www.skynews.com.au
Sky News Business speaks exclusively with 'Rates Whisperer' Terry McCrann ahead of Tuesday's RBA Meeting.
 
T0BY:

50/50 chance leave on hold or cut I think. Either way - there's going to be volotility. After journalist "rates whisperer" Terry McCrann spoke last week his prediction markets have priced in 0.15 rate cut..

Agreed, 50/50 - but going to be a fun ride :) Thanks for the link mate
 
Well that was a nice ride :)  Looks like there was definitely a cut factored in but still some lovely profit. Didn't hurt that it was rejected at the weekly pivot this morning either.

A lot of economists with egg on their face today....
 
Filter:
Well that was a nice ride :)  Looks like there was definitely a cut factored in but still some lovely profit. Didn't hurt that it was rejected at the weekly pivot this morning either.

A lot of economists with egg on their face today....
Very interesting analysis, thank you.
 
angevoyageur:
Very interesting analysis, thank you.
No probs, I get lucky sometimes :)

Hope others managed to get in on the 150+ short before the USD tanked and spoiled the party 
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