What's The Setup Ahead Of The RBA?

My observations below should be viewed as general advice and may not be right for you.

The big event today will obviously be the RBA interest rate decision today at 2.30pm. The futures market is pricing in a 68% probability of a 25bps cut but no doubt this is not an easy call. Gun to my head, I would actually say that I don't think they will cut this afternoon. This is because the Central Bank has been given some breathing space due to the huge stimulus packages announced overseas, and they may want to see what short term effect this has on the economy, especially given the upcoming CPI and PMI numbers. Commodity prices and in particular Iron Ore have recovered strongly recently, and this was an expressed concern at the last meeting.

Whatever the decision, as a trader it is always important to have a plan and a set of scenarios or "what-if" statements. Obviously we just don't know how much the market has already priced in, and thus one must gauge the underlying price action relative to the news and the levels. To me, the Aussie has been correcting lower off the recent 1.06 highs and this implies a breakout to the upside in coming days. Furthermore, when I look across currency pairs, I see a number of bullish daily charts against the USD such as NZD and EUR. These imply continued USD weakness which should benefit the Aussie. The major levels and charts are shown below. A key risk to this scenario would be a solid break below 1.03 to 1.033.

AUDUSD Daily:
Restest of this key upward trendline. Thus this presents an interesting low risk area to look for bullish reversals. Any failure to hold here could be used as a potential breakdown trigger for traders in time.

AUDUSD 60mins:
The Aussie continues to grind lower in choppy fashion and into strong support at the 1.030 to 1.033 area. Note that this sell off from the recent highs has not been strong despite the market pricing in continued rate cuts. This is a sign of underlying demand I believe. The short term range is 1.030 to 1.045/1.047 and swing traders will need to see breakout ABOVE the latter zone for confirmation.

AUDUSD 15mins:
These are the short term levels I am looking at. A move above 1.040 could be used as a breakout trigger to the upside for short term traders. On the downside, traders could look for spikes into 1.03 for low risk long setups with tight stops, and look for shorts should the RBA cut rates and support fails.

NZDUSD Daily:
The Kiwi is in a strong Daily uptrend and has broken out above the recent highs. A Daily close above 0.836 is needed to confirm the next leg higher.

NZDUSD 60mins:
Price made a meaningful low at 0.8180 right on the ABC target. The move off the recent low has been strong and this could be the prelude to a bigger picture breakout in coming days.

In sum, today's RBA interest rate decision will be a key catalyst for the Aussie going forth and will provide some great moves for FX traders. A 25bps cut would be deemed bearish for the Battler but it is very tough to know how much of this has been priced in. Thus traders need to heed the underlying price action in relation to both the announcement and the levels. The setups here imply we could see breakouts to the upside should 1.040 lift. Bears need to see breaks of 1.03. It will be very interesting indeed.

Thanks
Austin