Trading the Reserve Bank of Australia Interest Rate Decision

February 6th, 1:41 pm by Sam

(eToro Blog) The Reserve Bank of Australia is scheduled to announce its interest rate decision at 3:30 am London time on February 7^th. Analysts are forecasting that the RBA will cut rates by 25 basis points. Australia has been one of the best performing economies in 2011 despite a global financial crisis due to the sovereign debt issues in Europe. The Australian Dollar has gained nearly 800 pips against the U.S. Dollar since the last rate decision. The RBA has delivered two consecutive rate cuts of 25 basis points in November and December; however the Aussie continues to attract safe haven capital flow because of the strong local economy.

OpenBook top trader waleed0987 has been bearish on the AUDUSD. While this trader has been trading against the trend, he has managed to squeeze small profits from his short positions between 2% and 8%. Ahead of the RBA rate decision, this trader has a short AUDUSD position with target at 1.0462. Trader waleed0987 has 1438 copiers and 8872 followers on OpenBook.

Recent Australian Economic developments to take in consideration

Australia reported a trade surplus of $1.7 million in December, an increase of $366 million in surplus from November. The unemployment rate held at 5.2% in December. CPI rose 3.1% on an annual basis in the fourth quarter compared to a rise of 3.5% on an annual basis in the third quarter.

Market Reaction to previous RBA rate decision

At its last policy meeting, the AUDUSD dropped 60 pips immediately after the rate cut was announced.

Scenario A: RBA cuts rates by 25 basis points

This scenario is widely expected. In this scenario, the AUDUSD might drop 60 pips after the rate decision

Scenario B: RBA cuts rates by 50 basis points

If the RBA believes that the situation in Europe does not have a quick fix and decides to lower by 50 basis points, we might see the AUDUSD drop by 100 pips.

Scenario C: RBA leaves rates unchanged

If the RBA takes a neutral stance, we might see the AUDUSD continue its trend and rally higher towards 1.1000.

OpenBook:

Traders on OpenBook are primarily bearish on AUDUSD with average limits at 1.0550and stops at 1.0800.

OpenBook trader molla01 is a unique trader as this trader focuses on trading just the AUDUSD. The trader has had an impressive run so far with 170% returns in the last seven days and 749% returns in the last thirty days. This trader has been trading on a 100 pip move in the pair by shorting near 1.0540 and closing near 1.0444. This strategy has netted the trader close to 95% returns with his medium risk strategy. The trader has also been looking for buying opportunities near 1.0690 and closing near 1.0760 with gains near 100%. This trader has also built up a sizeable long exposure on the AUDUSD and is expecting the pair to target 1.0670. While the vast majority of traders are bearish on AUDUSD, this trader has simply followed the AUDUSD trend and looked for buying opportunities. With 76.3% of this trader’s trades in the buy direction, we are waiting to see if this trader will switch his opinion depending on the RBA rate decision. This trader has 4 copiers and 28 followers on OpenBook.