RBA Rate decision set for 12:30 AM. AUDUSD better bid after selling off earlier in the day

The Reserve Bank of Australia is expected to keep rates unchanged at 3.0%. This would be the third month in a row with steady rates.  This came after a series of cuts which saw rate fall a total of 4.25% from 7.25%. 

GDP grew by 0.4% in the 1st quarter, after only one quarter of negative growth.  Retail Sales rose by 1% in May which was higher than expectations.  In addition to aggressive monetary easing, the government has given out 12 billion Aussie dollars to consumers, and pledged a further  22 billion A$ more for infrastructure spending. 

Despite the good economic news, at the last meeting Governor Stevens  said the central bank had a scope to cut rates if needed.  This was a curious comment which may have been an attempt to slow the ascent of the AUDUSD which has risen by over 50% since bottoming in October 2008. The midpoint level comes in at 0.7927.  This will be a key level to watch today.  A higher AUDUSD makes exported goods less competitive abroad and could have threatened the recovery.

Australia has benefitted from having less of the banking woes that have hurt countries like the US, UK and the Eurozone.  They have also benefitted from their geographic proximity to emerging countries like China and India – two other countries who have continued to experience growth in the 1Q.

A more favorable assessment by RBA Governor Stevens today should manifest itself in a stronger AUDUSD. If his assessment on growth is less than robust, the currency pair

From a technical perspective, the AUDUSD got a late boost in NY in anticipation of a better economic assessment from the central bank.  This was despite a negative day for the commodities which normally leads to a decline in the AUDUSD.   The G8 announced today that they would pledge 15 billion to global food efforts which may have helped pressure the commodity complex.  Now that the holiday weekend is over (and half the summer), the oil complex also fell further in anticipation of even less demand. 

Nevertheless, the pair was able to erase the entire move lower in the 1st half of the day and close higher.  Going into the evening session, the the key level on the upside comes in at the 0.8015 level. This is where both the 200 hour and the 50% retracement of the recent wave down is currently located. 

On the downside, we will be watching the 0.7927 level which is the midpoint of the move lower in 2008.  Activity can be volatile and choppy before the announcement.  Adjust positions accordingly.

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