When is the RBA Interest Rate Decision and how could it affect AUD/USD?

With the recent pessimism concerning the coronavirus (COVID-19) outbreak in Europe and London, coupled with the dovish tone of Governor Philip Lowe, the Reserve Bank of Australia’s (RBA) monetary policy decision, at 03:30 GMT on Tuesday, becomes the key for the AUD/USD traders.

The Aussie central bank policymakers have already shown the intention to lower the benchmark interest rates to refresh the record low from 0.25% to 0.10%, coupled with an increase in the Quantitative Easing (QE). Though, the recent recovery in Aussie economics confronts the recovery in the pandemic woes at home to probably push Governor Philip Lowe and the company to strike a mildly dovish tone than to wobble the markets.

Analysts at Westpac provide key details of the RBA’s fight against the virus and probable outcome:

We expect the RBA to lower rates, cutting both the cash rate target and the 3-year government bond target from 0.25% to 0.10%. In addition, the Bank will announce an expanded bond buying program, QE, with the aim of lowering rates across the curve, including 5 years to 10 years. There is debate over whether they will announce a specific total or retain flexibility a la the Fed. Quarterly economic forecasts will be revealed in Friday’s statement but maybe alluded to today.

TD Securities, on the other hand, expect no major surprises from the event:

We and the market expect the RBA Board to cut the cash rate to 0.1%, cut the 3-year Yield Curve Control Target to 0.1% and take the Term Funding Facility rate to 0.10% as well. We expect the RBA to announce a QE program to purchase ACGBs and semis in the 5-10yr segment of the curve. A program of around A$100b appears likely. We expect the Bank to purchase bonds regularly but don't expect the RBA to keep purchases constant each week, but vary on supply/demand.

How could the RBA decision affect AUD/USD?

AUD/USD fades Monday’s recovery moves after hitting 0.7062 earlier in Asia, currently around down 0.05% intraday to 0.7052. In addition to the cautious sentiment ahead of the key RBA meeting, the market’s worries before the US elections also test the bulls. However, the RBA action has widely been anticipated, and likely priced in some cases as well.  As a result, if the event meets the market consensus of a rate cut to 0.10% and Australian dollar 100 billion of QE, a knee jerk reaction could be expected, nothing major. Alternatively, a surprise action will have a notable impact on the AUD/USD, mostly on the upside considering the recent cautious optimism in the market.

Technically, AUD/USD prices are yet to cross 100-day EMA, at 0.7065 now, which tests the buyers since last Thursday. As a result, sellers are targeting a fresh low under the mid-July bottom near 0.6960. Though, the 200-day EMA level of 0.6955 can challenge AUD/USD bears afterward.

Key quotes

AUD/USD keeps recovery moves above 0.7000, eyes RBA, US elections

AUD/USD Price Analysis ahead of RBA: 15-min bullish reverse head and shoulders

RBA Preview: Rate cut and QE expansion to turbo-charge economic recovery

AUD/USD Forecast: Holding above 0.7000 ahead of RBA

About the RBA interest rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.