Forex Signal (Tue September 7, 2010 12:30am EST NY Time) AU RBA Interest Rate

Henry Liu

Former FPA Special Consultant
RBA (Reserve Bank of Australia) is expected to hold borrowing costs steady for the forth consecutive meeting in September, as all 25 analysts unanimously agree in a survey by Bloomberg… Here’s forecast:

12:30am (NY Time) AU RBA Cash Rate Decision Forecast 4.5% Previous 4.5%

The Trade Plan

However unlikely, in the event that RBA decides to surprise the market by hiking interest rate up by another 25 basis points to 4.75%, we should see an immediate buying of AUD, therefore we’ll jump in on AUD/USD in a LONG trade following my spike trading method. Because of the surprise factor and the general shift in fundamental sentiment if RBA were to hike rates, AUD/USD could stay in a uptrend for the rest of the month, therefore a spike trade is totally justified.

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
RBA & Governor Stevens is likely to focus on the recent q/q GDP release which showed a surprise growth in recent Australian economy. However, Stevens is also likely to point out the fact that uncertainties in the global arena remains high, hinting that resuming rate hikes may do more harm than good in the short term.

With Trimmed Mean CPI resting at 2.7%, RBA is not under immediate pressure to hike interest rate, as most central banks's target is to keep inflation between 2~3%.

Additionally, looking at the Sydney Futures Exchange, there is under 8% of probability for RBA to increase rates for the rate meeting in November (making the October meeting about 0% probability for change), let alone the September meeting...

Additional Thoughts
Gov. Glenn Stevens cited in his last RBA statement that concerns over US' lackluster growth is one of the reasons for RBA pausing from further rate tightening. Judging from the reactions in the NFP release last Friday, I believe RBA will wait and see until after another two NFP before making any significant shifts in its rate policy... However, no one can rule out the possibility of a rate hike as early as October. Therefore we must focus on the statement accompanying this rate decision. If Stevens signals a more hawkish tone citing the improvements in both domestic and abroad, and that inflationary target should be contained as early as possible, we could expect a surge in the AUDUSD as speculators push this pair above the 0.92 to even the 0.94 level...

Pre-Market Consideration
Since this rate decision is expected to be unchanged without any real possibility for a surprise, I'd stay out of the market.

Historical Chart & Data For RBA Interest Rate Decision


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