AUDUSD On The Rise After RBA Calls For A Period Of Interest Rate Stability…


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During the RBA (Reserve Bank of Australia) Interest Decision on March 4, RBA Governor Stevens once again issued the statement “the most prudent course is likely to be a period of stability in interest rates,” as the official monetary policy, which means that there are no rate cuts on the table for the future, at least for now.

This is obviously a positive for the AUD, although Stevens did mention that the AUD exchange rate is high by historical standard,  investors managed to push the AUDUSD from the 0.8900 level all the way back up to the 0.8970, making its way back towards the 0.90000 psychological level.

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With market sentiment shifting after the February 3 RBA meeting when Governor Stevens first used the “stability” clause, we’ve seen AUD sellers covering their shorts, as AUDUSD pared off the low of 0.8668 and moved to as high as the 0.9050; I believe AUDUSD has bottomed out and the next move should be up, especially if there are no sharp negative surprises in the Australian economy.

Of course, one area of caution is the Employment sector, as RBA mentioned in the most recent accompanied rate decision statement:

The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. Growth in wages has declined noticeably. If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time, which should keep inflation consistent with the target, even with lower levels of the exchange rate…

… Looking ahead, the Bank expects unemployment to rise further before it peaks. Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

Therefore, I would definitely go LONG on AUD after an AUD sell off, especially against USD or JPY, with the latter being a bit riskier but has a higher potential for profits.  The next scheduled AU Employment Change is on March 12, 2014 and I believe with a bit of planning ahead, such as sell into the news (pre-news) and then buy after the market settles (post-news) would result in good profits if the Employment report were to disappoint (as stated in the RBA statement).  At any rate, I believe AUDUSD has found a bottom around the 0.8800 level, and it’s common sense that when it can go down not more, the only direction is up.









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About Henry Liu

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