Trading volatility: AUD/USD around RBA rates
With inflation remining a concern, on Tuesday 6 February the Reserve Bank of Australia (RBA) will decide on interest rates.
With the recently released trimmed mean CPI showing a drop it remains a concern so it will be interesting to see what the central bank say about the outlook for rates. Markets re expecting Aussie rates to stay on hold, but could the rhetoric accompanying the rate decision steer the trade around AUD/USD? IGTV’s Jeremy Naylor looks at the risks.
(AI Video Summary)
The Reserve Bank of Australia
Next week, there is an important event that could affect how trading moves called the Reserve Bank of Australia's interest rate announcement on Tuesday. While it is not expected for there to be a change in the cash rate, the latest inflation data could influence the central bank's opinion on getting inflation back to the target. The trend mean CPI for the fourth quarter was 4.2%, slightly lower than the previous quarter but not as much as people thought.
AUD/USD
The AUD/USD pair may be the focus of trading during this time. This week, the Australian dollar went down to levels it hasn't been since November 17th, which caused people to make short trades on the currency. But then, there was a sudden change in the US dollar, which made the AUD/USD pair go up. At first, it was believed that there was more risk of the pair going down, but now economists think that the Reserve Bank of Australia may suggest the need for another interest rate increase to fight against inflation that won't go away. Because of this, there could be a lot of movement in the pair.
If the RBA's statement suggests a potential interest rate increase, it would be a good idea to buy the AUD/USD pair at 65.95. In this situation, the target could be the high of 66.88 reached on December 4th. However, it is uncertain if it is a good idea to make a long trade at this time. On the other hand, if the RBA suggests a possible interest rate cut, the AUD/USD pair could go up to around the 66.30 level, then go down below the low of 65.08 set on February 1st.
In summary, it is hard to know how the AUD/USD pair will go until the RBA makes their statement. If the statement suggests a potential interest rate hike, there might be a chance to buy, while a statement suggesting an interest rate cut could lead to selling. Overall, there could be a lot of movement in the trading of the Australian dollar against the USD.
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