Nov RBA Rates Decision: Expectations

Looking at the recent 4 rate cuts by RBA, we can see a few similar characteristics:

2011 Rate Cuts

2012 Rate Cuts

With the exception of Oct 2012 cut, all other rate cut saw AUD/USD going lower for around 1 month before seeing a bullish reversal. Effect of Oct 2012 cut was short-lived, with bullish reversal happening 5 trading days later, unable to sustain a push below 1.02.

Today’s scenario is very similar to the one on 1st Oct, with price similarly hovering around 1.0350 before the RBA decision is announced. Majority of Analysts expect at 25 bps cut this time round, perhaps believing that RBA may want to cut rates once more to push AUD/USD down after the previous rate cut failed to do so.  Even Treasurer Swan came on record to say that RBA rates can be kept low due to Aussie’s current strength, stirring more speculations of a rate cut later today.

However, better than expected CPI data and TD Consumer Prices may hamper any easing actions by RBA, as any such cuts will no doubt increase inflation further. Another issue is that RBA cuts have not fully flow down to the end consumers, with banks enjoying the cuts without providing lower rates to borrowers. Hence a further cut may not benefit the economy at large.

Regardless what the decisions may be, a few key levels to take note:

Rate Cut: Watch out for 1.02 level once more as there is where the previous cut has failed. Beware of false breakout around 1.02 level as evident back in Sep and Jul 2012 where price hit around the low of 1.015 before moving back up.

Rate Hold: 1.04 is the immediate level of resistance. A main reason why the previous cut “failed” would be the sudden increase in CPI. We’ve already seen AUD/USD rallying a fair distance away from the 1.02 low, hence it is prudent to assume that some if not most of the traders have already priced in a “Hold Rate” scenario” following the CPI release. As such, a rate hold may not actually move price that much higher despite the popular vote by Analysts.

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