No change in rates expected

With the RBA expected to remain on hold, the focus on the upcoming rate decision will be on the statement (it is Phillip Lowe's first statement as Governor of the central bank), as well as the technical levels.

The RBA has cut rates twice in 2016 (in May and August). The rate currently stands at 1.5%. - the lowest rate ever. The market is pricing in a 27% chance of a cut in December and a 53% chance by the February meeting.

The last statement highlights included:

  • The global economy is continuing to grow, at a lower than average pace.
  • Actions by Chinese policymakers have been supporting growth, but the underlying pace of China's growth appears to be moderating
  • In Australia, overall growth is continuing despite a very large decline in business investment, helped by growth in other areas of domestic demand and exports
  • Labor market indicators are somewhat mixed, but suggest continued expansion in the near-term
  • Inflation remains quite low. They expect low-inflation to remain for some time.
  • Low interest rates have been supporting domestic demand.
  • The lower exchange rate since 2013 is helping the trade sector
  • Lending standards in the housing market have been strengthened and a number of lenders are taking a more cautious attitude to lending in certain segments.

Overall the tone was quite neutral. The market took that as less dovish and the pair ended up rallying after the decision. The expectations are for more of the same.

As a result, the markets direction will likely be focus on technicals

What levels are important for bulls/bears.

Since the September 6th decision, the AUDUSD has moved from around 0.7600 to a high of 0.7731 on September 8, and a low of 0.74441 on September 13th. Since the bottom on September 13, the price rallied to a high of 0.77093 (reached last Thursday). The current price and 0.7665 is not that far away from the level that prevailed at the last meeting.

Since September 22nd, the price has a low of 0.7589 (reached on Friday last week) and the high of 0.7709 on Thursday (September 29th). The tumble on Friday took out the September 26th low at 0.7602 and that helped contribute to the extra momentum lower. The price also fell below the 200 bar MA on the 4-hour chart, but held above the 100 bar MA on the same chart (see H4 MA 200 and 100 in the chart above). ON the downside, those MAs will be of importance (at 0.7583 and 0.7595 currently).

The rally higher on Friday, took the price above the 200 hour MA (green line marked H1 MA: 200) AND a couple of swing lows from September 27 and September 28 at 0.7640 and 0.7644 respectively. The lows today in the Asia-Pacific session, bottomed at 0.7641 and 0.7644. That yellow area is a closer support area that will likely switch the bias from bullish to bearish on a break after the statement is released. Stay below that level puts the bear more in control.

On the topside, with the price above the 100 hour MA currently at 0.7659 and the 200 hour MA at 0.7654 (and moving higher), the bulls are more in control.

A further run higher will look to take out the recent highs at 0.7688 and 0.7694 and then the underside of the broken trend line (follow the blue circles in the chart above). That line was broken on Thursday. ON Friday, the underside was tested and stayed below. The market seems to be leaning against that line. By the time the decision is released (at 11:30 PM ET/ 0330 GMT, the line will above the 0.7700 level and close to the 0.7709 high. Getting above both those levels will be more bullish and have traders looking toward the 0.7731 high from September 8th.

Do I expect much from the meeting?

Not really. It is Lowe's first. I don't think he or the market should see any reason to be overly anything at the moment. As a result, the moves - if they come - will be telegraphed from the technicalshim. Understanding what levels are important to get to and through is important.

Also, be on the lookout for moves and breaks that fail. It is often the breaks and failures on a neutral statement, that provide the trading opportunities to buy low or sell high with limited risk.