Forex Trade Plan And Video For RBA Cash Rate Decision 08/03/10

 RBA (Reserve Bank of Australia) is expected to hold borrowing costs steady for the third consecutive meeting in August, as all 23 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%
ACTION: AUD/USD BUY 4.75%

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 immediate future policy for RBA may be that of a “wait and see” as most analysts are expecting RBA to also hold rates unchanged until possibly towards the end of 2011. This will undoubtedly add pressure to the AUD, or perhaps keep AUD in a very tight trading range as the market wait for RBA to make the next move. As a matter of fact, Credit Suisse overnight swap index is pricing RBA to hike about 22 basis points in the next 12 months… therefore we are not likely to get surprised today.

Furthermore, based on the Sydney Futures Exchange data, RBA’s probability of a rate hike dropped from 28% last week before the quarterly CPI release, to about zero percent today; and at a closer look to the Core CPI q/q reading, we are seeing that 2nd Quarter Inflation is at 2.7%, well within the range of RBA’s target (between 2~3%), reaching the conclusion that RBA does not need to hike rates

Additional Thoughts
Gov. Glenn Stevens will be releasing an accompanied statement along with RBA’s rate decision. Any hints of a further pause should drive down the market significantly. If Stevens is optimistic and feels that another rate hike is coming, then expect demand for AUD rise. In the absence of clear direction from the rate decision, Stevens’ statement will determine the market today. However, just note that most central bankers are not in the business of scaring the market, it is likely to see a cautious tone today, reiterating all recent rhetoric… But just be prepared if Stevens had too much to drink and decides to have a little fun.

Pre-Market Consideration
Looking at the general market optimism today, starting with HSBC and BNP Parribas topping earning expectations and blowing any concerns of risk aversion sentiment or sovereign debt crisis to the smitherines, I have to say that AUD may remain strong and well support for the time being, therefore we may not get a chance to SELL it until after the release today…

Related posts:

1. Trade Plan For RBA Interest Rate Decision 09/07/10
2. RBA Cash Rate Decision Trading Plan 07/06/10
3. Trading RBA Cash Rate Decision 06/01/10
4. RBA Cash Rate Decision 04/06/10
5. RBA Cash Rate Decision 02/01/10
6. RBA Cash Rate Decision 11/30/09 (Interest Rate Decision)
7. RBA Cash Rate decision 03/01/2010
8. Forex Strategy For AU RBA Interest Rate Decision 08/01/11
9. Forex Trading Strategy on RBA Interest Rate Decision 10/04/10
10. Forex News Trading AU RBA Interest Rate 09/06/11

Tagged as: AUD, Australia News, bank of australia, bloomberg, current rate, economists, economy, Expectation, Inflation, Inflationary Pressures, Interest rate, interest rate decision, Key Interest rate, market sentiment, Priority, profit taking, rate hikes, RBA, recession, Reserve Bank of Australia, reserve bank of australia rba, Resume, Reuters, risk appetite, trade, USD