Daily Briefing, July 2 – RBA Cuts Interest Rates, What’s Next on the Docket?
Arslan Butt • 2 min read
Good morning, fellas.
The Asian session has exhibited massive volatility on the back of the RBA monetary policy decision. The RBA has once again cut the interest rates by 0.25%, following a move at June’s meeting. Fellas, it’s the first back-to-back cut since 2012, amid concerns of a global economic meltdown emanating from European banks. Besides that, the trade war between the US and China has also been one of the catalysts behind the aggressive dovish policy from the RBA.
However, we have seen strong buying in the Aussie as the decision was widely expected, with the market pricing a roughly 80% chance of a cut ahead of the RBA board meeting.
The chances of further cuts had been decreasing since RBA governor Philip Lowe announced last month that one cut was unlikely to address the decline in unemployment the bank was aiming for. The Reserve Bank of Australia has recently observed that a 4.5% jobless claims can be considered close to full employment.
Unemployment has been rising firmly lately, from as low as 4.9% earlier in the year, to 5.2% in May. Whereas, the Gross Domestic Product growth has slowed to just 2%. Considering this, the rate cut from RBA seems justified; the economy does need financial support.
FOMC Member Williams Speaks
At 10:35 GMT, the Federal Reserve Bank of New York President John Williams is due to participate in a panel discussion about global economic and monetary policy outlook, at an event sponsored by the Union Bank of Switzerland, in Zurich. Remarks on the upcoming policy will be worth watching today.
RBA Gov Lowe Speaks
At 21:30 GMT, RBA Governor Philip Lowe is scheduled to speak at the RBA Board Dinner, in Darwin. Audience questions are expected and any remarks about today’s rate cut and forward guidance may help drive further trends in the Aussie.
AUD/USD – Shark Cypher Weighting on Aussie
The Aussie gained bullish momentum against the US dollar after RBA first announced the rate cut as investors were widely expecting such a scenario. The AUD/USD pair has placed a high of around 0.7040 at the weekly opening amid a weaker dollar and on hopes that the US and China may enter a trade truce.
Aussie dipped dramatically as an initial response to the interest rate cut. However, it recovered soon after as most of the rate cut was already priced in.
AUD/USD has formed a bearish setup called Shark Cypher on the daily timeframe, completing CD wave from 0.6840 to 0.7040. Aussie has already completed the 38.2% Fibonacci retracement around 0.956, and now this level is providing substantial support to AUD/USD.
AUD/USD – Trade Idea
A bearish breakout below this level could trigger further sell-off until 0.6910 while, 0.7020 is the target for bulls today.