QuantumLogicTrading
Short

SHORT AUDUSD: RBA INTEREST RATE DECISION - CUT 25BPS TO 1.50%

FX:AUDUSD   Australian Dollar/U.S. Dollar
4 months ago
RBA Cut the Cash rate to 1.50% by 25bps, the market has had a very subdued reaction though, barely falling 30pips from market. I still think there should be more downside here and into the mid/low 74xx before the full fade comes in - so luckily room for retails to get in, looks like the algos were having a day off today.

This is positive for any kiwi$ short holders - this now puts almost certain pressure on RBNZ to do the same (if not 50bps) next week.

Previously Aussie$ fell 180pips back in May 3rd on a 25bps cut like this, and the next day lost 40pips so a total of 210pips in 2days, 0.766 to 0.745 - assuming this model holds true this time we should then expect AUD$ to trade to 0.737 in 2-days given we started at 0.758. Thus the 0.744/5 target I have should be modest but inline with the subdued market reaction (TPs further to the LHS run the risk of being faded out unreached). We could/ should see some more selling through LDN/ NY as real money gets on board - unlikely to stay in the 0.75's for today (or close here imo).


RBA Interest Rate Decision Highlights:

-AUSTRALIA AUG RBA CASH RATE* DECREASE TO 1.50 % (FCAST 1.50 %) VS PREV 1.75 %
-RBA SAYS RISING A$             COULD COMPLICATE ECONOMIC TRANSITION
-RBA SAYS JUDGED ECONOMIC GROWTH WOULD BE IMPROVED BY EASING
-RBA SAYS GLOBAL ECONOMY GROWING AT A PACE BELOW AVERAGE
-RBA SAYS RECENT AUSTRALIAN DATA SUGGESTS OVERALL GROWTH CONTINUING AT A MODERATE PACE
-RBA SAYS UNDERLYING PACE OF GROWTH IN CHINA ECONOMY APPEARS TO BE MODERATING
-RBA SAYS RECENT DATA CONFIRMS INFLATION REMAINS QUITE LOW, EXPECTED TO REMAIN CASE FOR SOME TIME
-RBA SAYS LESS RISK OF LOW RATES OVERHEATING HOUSING MARKET
-RBA SAYS LABOUR MARKET DATA CONTINUE TO BE SOMEWHAT MIXED
4 months ago
Comment: UPDATED

1. Check Main body above for updated views on the AUD$ situation now.
4 months ago
Comment: UPDATE:

1. Note the response is definitely less aggressive than previous cuts - only 60pips were priced yesterday so there is still room for 100-150 more from here (if the may cut is anything to go by).

- LDN/ NY selling may be saving grace but even at 1.5% Aussie still remains no.2 G10 best stop for carry.
4 months ago
Comment: UPDATE:

1. USD weakness seems to be rinsing this trade but by looking at the price action it should/ has to come back to mid 0.74s at some point - im thinking maybe NY spot will bring us into fairer levels once US markets open. Thats what happened last time on friday following BOJ which imo was underpriced massively - UJ should have been lower.
4 months ago
Comment: UPDATE - HSBC House view, neutral-hawkish future path for RBA - reason the cut was so easily faded.

1. HSBC'€™S BLOXHAM ON THE RBA:

Although growth is holding up well, inflation is too low. The RBA noted that 'prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting'. The statement provided little forward guidance, beyond noting that inflation was expected to remain low for 'some time'.

- We expect the RBA to now spend the next few months noting that they are waiting to see the full effect of the 50bp of cuts that they have delivered this year. Looking further out, we see wages growth and local inflation gradually lifting, as the rebalancing act comes to its end (around mid-2017, in our view). We see the RBA on hold in coming quarters, rather than cutting further.
MrWondera
4 months ago
So do we short this baby or nah? I dont see why we shouldnt cause obviously lower rate will mean weaker currency. At least it should go down in the short-term before we play with expectation in the coming month.....
Reply
laoboss MrWondera
4 months ago
sell into rallies, and take profits at daily swing lows
Reply
QuantumLogicTrading laoboss
4 months ago
yup short AUD, NZD, GBP rallies.. and im also short $yen rallies (nice hedge for the other trades incase $ weakness persists in the immediate term_ i think yen will move the cross lower anyway so,
Reply
QuantumLogicTrading MrWondera
4 months ago
Definitely AUD$ was a good short at 0.76xx anyway/ pre-cut so shorting now makes sense. we should see a pull back into 74lows for sure at least beforee we make any serious topside e.g. break 765 resistance.
Reply
QuantumLogicTrading MrWondera
4 months ago
we saw alot of usd supply yday tht was driving everything higher, i was very surprised to see Aussie fade the rate cut that quickly though v uncharacteristic
Reply
QuantumLogicTrading MrWondera
4 months ago
Sorry for the late reply but yes as the post indicates, shorting aussie rallies to 76xx is a good trade. it should come down into the 74low level at least within the next week, likely the next few days once USD flattens out.
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MrWondera QuantumLogicTrading
4 months ago
YEah thanks for your reply :D, i didnt short it though but i took entry short EUR/USD at 1.1214, I dont know what's going to happen this friday after Non-farm payrolls, if its flopped we AU 0.74 might not be reached but if its a hit 0.74 is on the table. Really love reading your fundamental view keep it up bro :)
Reply
QuantumLogicTrading MrWondera
4 months ago
thanks for your kind words - check out my GBP and Yen analysis posted today - i think theres some easy pips to be taken tomorrow at these elevated levels in both gbpjpy and gbpusd... yes NFP could be a trigger, but i still think even on thursday we could drift into the 74's just based on USD firming up on the back of stronger rate hike expectations - the fed funds futures have recovered and now implying 18% again vs 12% yesterday.. this should help USD trade as a base and allow gbpusd/ or aussie$ to trade well offered in the coming days after RBA rate cut and BOE likely rate cut.
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MrWondera QuantumLogicTrading
4 months ago
Oh by the way, do you think G/U is a good short as well? For tmr event?
Reply
QuantumLogicTrading MrWondera
4 months ago
Yes and gbpjpy - check my most recent post about short sterling into BOE!
Reply
MrWondera
4 months ago
im still following this trade after a few days. Just got in at 0.7637 i could be stopped out but tmr nfp could be good one so why not :)
Reply
QuantumLogicTrading MrWondera
4 months ago
yup, now is the best time we are at the intermediate top of 0.765 which has held twice before so good chance of holding again given the RBA cut - and yes a solid NFP will stop the usd supply and aud could lose 100+pips tomorrow easily given the cut + nfp pricing.

The rba cut was negated by this USD weakness, in recent times ive never seen the USD so weak but rate expectations are selling off aggressively post the GDP print but NFP could reset the tone for sure and put USD back on target. Fed funds sees fed hike still at only 12% for sept which is where we ended last week and is why we cant get much USD topside traction, hopefully NFP doesnt add to the fire!
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