RBA Holds OCR at 2.25%; The AUD/USD Rally Should be Faded

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RBA Holds OCR at 2.25%; The AUD/USD Rally Should be Faded

The Reserve Bank of Australia (RBA) met and voted on monetary policy this week. Today it made the announcement that it will hold the official cash rate (OCR) at the record low of 2.25%. RBA chief, Glenn Stevens continued to talk down the Aussie saying it is still above “fair value”.

Now, with expectations building for a rate cut, the hold should give the AUD at least some short-term support, and that is what we are seeing in the AUD/USD.

AUD/USD 1H Chart 4/7
audusd rba
(click to enlarge)

Bullish Reactions: The 1H chart shows that AUD/USD is current supported above the low on the year around 0.7540. The initial boost came last week after poor US jobs data pressured the greenback across the board. Today, the non-rate-cut is held AUD/USD hold above 0.7580, which was a support pivot established by the NFP-reaction.

Key Support: The 0.7580 pivot could be key now that it has acted twice as support. A break below it would be an early warning of bearish continuation first towards 0.7540, but with risk of breaking lower, in-line with the prevailing downtrend.

For now, after two fundamental factors supporting the AUD/USD, the pair might gain some short-term momentum for a bullish correction. However, the FOMC is still looking to raise rates this year, and the RBA still has the door open for more rate cuts so the bullish outlook in AUD/USD should be limited, and possibly seen as an opportunity for sellers.

AUD/USD Daily Chart 4/7
audusd daily chart 4/7
(click to enlarge)

Bearish; Expanded Flat: The daily chart shows a bearish market that has gotten choppy since February. there has been an expanded flat (a sideways consolidation with higher highs and lower lows. If the market remains in consolidation, a bullish attempt in the short-term can be expected to test the 0.7876-0.7937 resistance area, with risk of extending to 0.80.

Bearish Scenarios: Here, we should expect sellers whether the market is sideways or bearish. If we believe it has turned sideways we should limit the bearish expectation to 0.76. If we believe it is still bearish, we can look for downside risk at least towards 0.75.

Even if we believe the market is turning bullish, we should expect some resistance under 0.80 for a dip back towards the 0.7750 area, support/resistance and central pivot of the current expanding flat.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.