Forex Signal (Mon. October 4 2010, 11:30pm NY Time EDT) - RBA Interest Rate Decision

Henry Liu

Former FPA Special Consultant
RBA (Reserve Bank of Australia) is expected to raise borrowing costs in October, as 19 of 25 analysts agree in a survey by Bloomberg… Here’s forecast:

11:30am (NY Time) AU RBA Cash Rate Decision Forecast 4.75% Previous 4.50%

The Trade Plan

If RBA hikes rates as expected, we should jump in and buy AUDUSD or other AUD crosses as the expectation for a rate hike is not unanimous. If RBA decides to keep rates unchanged, we should see a strong sell-off in the AUD as market has been pricing in this rate hike since last week. We'll be trading this release using Spike Trade method.

The only time I'd recommend a spike trade is when there are so much momentum pushing this currency that regardless of spread and slippage, you should end up in profit if you just hold on to the trade. For more information on my trading methods, read:
Henry's News Trading Method.

The Market
19 out of 25 analysts agree that RBA will hike rates, but the Credit Suisse Overnight Index Swap is only showing about 60% of chance for a rate for this RBA meeting, with a total of 51 basis points of hike in the next twelve months (including this one).

With current inflation reading close to the 3% ceiling, RBA is now facing a dilemma between hiking interest rate to curb inflation as a pre-emptive move, or suffer the consequences of early hike as global economy lags. With relatively no new data to support this rate hike, RBA could very well pause again and wait for the next meeting... However, with RBA being very vocal lately, it is possible that we may just get a hike.

Additional Thoughts
Since we should get a chance to trade either way, make sure after you jumped into the market, pay attention to the accompanied statement as it should also affect the market if RBA decides to pause from further hikes.

Pre-Market Consideration
Market could be buying AUD prior to the release... If AUDUSD dips, I would be inclined to buy.

Historical Chart & Data For RBA Interest Rate Decision


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10ks a lot Henry. i must Say that I've always been skeptical when it cums to trading the news (due to the uncertainities surrounding it) but ur trade plans have greatly helped me start 2 c d light.U will be rewarded greatly.

10ks again