RBA Rate Decision and Rate Statement: What Lies Ahead for the AUDUSD

Summary:
• The AUDUSD is in focus as the Reserve Bank of Australia (RBA) meets to decide its interest rates going forward, with only a 4% chance of a rate cut.

The Reserve Bank of Australia (RBA) will present its next interest rate decision and rate statement on Tuesday November 5 at 3.30am GMT. While the RBA is expected to hold rates at 0.75%, much of the attention would be on the rate statement which usually accompanies the rate decision.

After a hefty slump between April and August, the AUDUSD has been able to bounce back strongly on the back of largely positive fundamentals from the US-China trade situation. This factor has largely impacted the pair, along with the outlook for monetary policy decision by the RBA in its previous statements.

The RBA has been at the forefront of central bank response to the projected slowdown in the global economy and acted swiftly to cut by 25bps in October. However, a rate cut is not likely to occur tomorrow for the following reasons:

• The 2020 GDP forecasts for Australia are 2.8%. The RBA is quite bullish about meeting this target.
• Latest housing data seems to suggest that this sector is now beginning to pick up in response to the lower interest rate environment.
• The last unemployment rate figure actually dropped from 5.3% to 5.2%, indicating apparent improvement in labour conditions.
• Inflation has held steady at 1.6%.

If the RBA does cut rates tomorrow, it will be a huge market surprise which could be dovish for the Aussie Dollar.

Technical Outlook for AUDUSD

Following from tomorrow’s rate statement, the RBA is also expected to present its monetary policy document on Friday November 8. I would expect the AUDUSD’s response to tomorrow rate decision and statement to be slightly muted (except the RBA actually cuts rates). The Nov 8 economic indicator may have more of a market impact, and traders may want to hold back until the RBA provides clarity on monetary policy then.

Price is approaching the 23.6% retracement from the Jan 21 2018 swing high to August 7 2019 swing low on the weekly chart. Price action from June to October 2019 has formed a potential double bottom, with neckline intersecting the upper trendline which connects the highs from the Dec 20 weekly candle till date.

A bullish break of the neckline with a 3% candle penetration close or a double candle close above this neckline opens the door to the 0.7020 mark (23.6% retracement). This is also the site of the support formed by multi-month lows of July 2018 to Feb 2019. A further break of this area targets 0.7234 (50% retracement level and site of weekly highs on January 6 and 13, 2019.

A failed breach of the neckline or blue down trendline could trigger a retreat to 0.6746 which presents an opportunity to add another bottom to the existing bottoms.