We need to watch the RBA closely

Odds of an RBA Rate Cut Surge

Posted Friday, September 20, 2019 by
Rowan Crosby • 2 min read

The odds of the RBA slashing rates to 0.75% at its next meeting, which is only a couple of weeks away, have surged overnight.

The drama all started yesterday, when the RBA got a rude shock, in the form of an increase in the jobless rate, with a tick higher to 5.3%. As we know, the RBA have set their sights on stimulating the economy through easy monetary policy, in a bid to get the workforce firing. By their reckoning, that will see wage growth an ultimately inflation.

On the back of yesterday’s number, futures markets are indicating a 70% chance of a 0.25% cut which was up from 41% prior to the release.

This is a big jump and suggests the market believes the RBA will take the OCR under the already record-low level of 1.0%.

Interestingly the economy added 34,700 new jobs during the month of August, with a 50,200 jump in part-time jobs on a seasonally adjusted basis according to the latest stats. But clearly it was the jobless rate that mattered most to traders as well as the key Australian banks.

There are now three major Aussie banks including CBA, ANZ and Westpac who all believe, to October RBA meeting will see the next cut.

Naturally the AUD/USD has fallen away as a result. Currently it sits beneath key support at 0.6800. There is little by way of support until we reach the recent lows around 0.6700, meaning we could well see some further downside.

Add to this, the fact that the FOMC came out with a rather hawkish rate cut, meaning their guidance wasn’t pointing to further cuts, will mean the pressure will be on the AUD/USD going forward.

If price can hold this current level of 0.6800, this might be an opportunity to open a short position and we can keep our stops relatively tight, keying off that now resistance level. The risk/reward looks quite good here given the downside room we have for this one to work.

AUD/USD – 240min.
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