RBA Holds Rates; AUD/USD in a Double Bottom Attempt

RBA Holds Rates; AUD/USD in a Double Bottom Attempt

RBA Stands Pat:
The Reserve Bank of Australia met to discuss monetary policy and concluded with a vote to hold the official cash rate at 2.50%. It does not seem like the property price bubble will force the RBA’s hand at raising rates. In trying to curb high-risk property investing, that would penalize first-time home buyers. Also, inflation has slid, while economic projections remain moderate. The labor market still has slack and has been volatile. RBA governor Glenn Stevens  acknowledged that the AUD has fallen lately, something he expressed hope for in past statements. However this decline “is offering less assistance than would normally be expected in achieving balanced growth in the economy.” (source: RBA).

The bank said that “the most prudent course is likely to be a period of stability in interest rates”. This usually means at least half a year. Experts are putting in projections which are around mid-2015. Today’s RBA statement does not give us any reason to move those projections.

AUD/USD Reaction:
The Aussie started the week gaining on the USD. This is mainly a product of the greenback fading across the board to start the week. AUD/USD rallied from a new low made last week at 0.8642 to test the 0.88 handle by the 10//7 US session.

AUD/USD 4H Chart 10/7
audusd 4h chart 10/7
(click to enlarge)

Double Bottom Attempt:

We can see in the 4H chart that price action is essentially a double bottom attempt. If price breaks above 0.8826, we have a price bottom, which suggests a period of consolidation ahead, especially if the RSI breaks above 60, which shows loss of bearish mometnum.

Even in a period of consolidation we will have a bearish attempt. Now, if this bearish attempt can hold above 0.8750, the price bottom would be clear. Otherwise, it would be tough to say, but a break below 0.87 would probably be part of a bearish continuation.

By the end of the week, if the AUD/USD still holds above 0.87 and can close at least above 0.8750, preferably above 0.8826, then we are likely to have some consolidation in the medium-term.

A double bottom has a target first toward the 0.90 psychological level and support/resistance. pivot.

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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.