Good afternoon team,
Todays RBA interest rate decision is a tough one to digest.
On one hand we have the RBA suggesting they will not move into the negative territory with rates which is bullish for the AUD. However, moving into September Job Keepers and Job Seekers payments are set to expire. Australians have been warned to start looking for employment sooner rather than later as the government plans to stop the covid-19 payments. Secondly, as corona-virus begins to spread for a second time in Australia this may force the RBAs hand to at least think about a cut to 0 or negative in the near future. Lower interest rates are used to stimulate the economy as borrowing becomes cheaper. With the September deadline looming, we may see the RBA take a more dovish stance. All eyes are going to be on the RBA statement at 2:30pm.
Recently the AUD has rallied due to the huge risk on mode across global equities, metals including copper have surged higher in anticipation of economies reopening and an increased demand. Currently the AUD and Copper has a very close correlation.
Australia has just set boarder restrictions in NSW and there has been rumours across the news and social media of a second lockdown. We have just seen the largest jump in cases in Australia since the corona-virus pandemic first started.
What does this mean:
The AUD has been extremely bullish over the past couple of weeks. However we see the potential for a reversal on the currency as local fundamental risks are increasing. The RBA may also want to weaken the AUD to help stimulate economic growth through exports. A stronger AUD may damage our economy during this difficult period.
We are looking to position on the EURAUD. The EUR has become the safe haven recently due to the lowering covid-19 numbers and the funding the ECB is planning for the economy.
EURAUD – 4 Hour Charts
The market has been obeying the negative trend line for the past 2 months. The more times the market touches a trend line the weaker it becomes (generally speaking). Therefore we see this a possibility for a breakout today or this week.
Trade Setup: BUY STOP – Entry price 1.6277, stop loss 1.6177, take profit 1.6433 – 1.6536
Stop loss: 100 pips
Take profit: 156 -259
We are not looking to buy the AUD even if it strengthens coming out of this decision, this is due to the risks of a reversal.
We are placing the trade at 2:25pm, if the trade is not activated we will close.