Market Overview

RBA Cuts Rate to 3.00% – Reaction and Charts

The Reserve Bank of Australia cut its cash rate from 3.25% to 3.00%, the lowest since in 50 years. However, if you look at the chart without any explanation, one would think that RBA has raised its reference rate instead, or at the very least holding its rates at 3.25%.

And yet AUD/USD rally, after barely breaking 1.04 level. Price recovered almost immediately, pushing above the previous swing high of 1.043, which is acting as an interim support for this rally. It has been well documented that market was already expecting such a move, with Futures market pricing in almost 100% certainty that a 25bps cut is going to happen. Many analysts were also calling for a cut, citing deteriorating mining industry as the main reason for a cut to stimulate market once more. Furthermore, RBA is not scheduled to meet until Feb 2013, increasing the likelihood of any Central Bank action during this decision making round.

5 Minutes Chart

http://forexblog.oanda.com/mserve/AUDUSD_041212M5RBA2.PNG

Statement from Glenn Stevens helped stroke bullish sentiment, with inflation risk once again coming into focus. Headline CPI inflation is expected to rise above 3 per cent briefly during 2013. Stevens is also recognizing that a weaker AUD will push inflation further, potentially shackling future rate cuts from RBA as rates has already hit historical lows.

4 Hourly Chart

http://forexblog.oanda.com/mserve/AUDUSD_041212H4RBA.PNG

4 hourly chart suggest price has broken away from the falling channel, with current price levels facing resistance around 1.044, with a breakout opening the 1.044 – 1.05 trading range. 1.04 continue to act as support, together with the 23.6% Fib retracement line.

Weekly Chart

http://forexblog.oanda.com/mserve/AUDUSD_041212W1.PNG

Weekly Chart still shows AUD/USD heading marginally lower, with recent rally potentially facing the downward trendline  with 1.05 confluence potentially happening in 3 weeks time (assuming current trendlines hold). With this setup in mind, we could potentially see an accelerated upward momentum should price breaks 1.05 to set 2013 with a bullish tone. A respect of the downward trendline will weigh on AUD/USD, but follow through to the downside may be lacking with positive risk trends as AUD/USD is potentially losing its one of the biggest downside risk – further rate cuts.

 

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Posted-In: Forex Economics Markets Trading Ideas

 

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