RBA Rate Decision & Trade Balance

4 February, 2019

There are two events coming up on the economic calendar which traditionally inject volatility into AUD pairs, in addition to other data that might be relevant to traders looking for some Australian insight.

Here are some things to keep in mind as you go through your busy day down under, in chronological order.

Commbank Services PMI

Scheduled for release on Monday at 23:00 CET (or 17:00 EST), the Commbank Services PMI is not the main gauge used by the market.

However, some use it to extract insights into the number that will be published later. Consensus is for the indicator to drop to 51.0 from the previous month’s 52.7

AIG Services Index

Scheduled for Monday at 23:30 CET (or 17:30 EST), the AIG Services Index gives insight into how the largest component of the Australian economy is doing. There are currently no expectations, but the previous month came in at 52.1.

Balance of Trade

We could see some volatility around 01:30, Tuesday CET (or 19:30 EST on Monday) as there are two simultaneous releases. The more important release is the balance of trade which we’ve discussed at length previously.

Last time around, the trade balance came in below expectations but was driven mostly by exports and imports hitting record highs, both of which suggest that the Australian economy is doing well.

The commodity price index bumped up by 1.2% as reported on Friday when we discussed how iron ore prices were spiking higher. The combination of these factors suggests that the trade balance should remain healthy.

For several months now the trade balance has mostly missed expectations driven by higher than expected imports. The consensus is for a trade balance of AUD2.25B, up from the prior AUD1.93B.

Retail Sales MoM

At the same time as the Balance of Trade, we will be getting the release of the retail sales data from Australia. This is usually not a market mover, but if there is something way out of the ordinary, especially with traders in a holding pattern ahead of the main event of the day, you might want to keep an eye on it.

Retail sales have grown over the last several months, but there is an expectation that they will drop by 0.1% this time around (which would further indicate that the trade balance ought to widen).

RBA Interest Rate Decision

Saving the best for last, at 4:30 CET, Tuesday (or 22:30 EST, Monday) we have the anticipated monetary policy decision from the RBA.

The RBA is notoriously conservative and is known for limiting its interventions. The broad consensus is that there won’t be a change in policy at this meeting, so we’ll be looking at changes in the policy statement and outlook.

Some analysts are considering that the next move by the RBA will be to cut the rate by 25 basis points. This is why the statement will get extra scrutiny, to see if there is any indication of a downward outlook.

There are several reasons for this expectation, which include the ongoing trade war between its two largest trade partners, and the decline in the housing market. However, that’s not likely to be anytime soon, since inflation is virtually at the target rate, unemployment remains low, and exports are at record highs.

The technicals

The AUDUSD seemed to be set up to resume its downward channel trend that it had maintained through most of last year, forming its first two peaks and valley. However, as we mentioned, the currency got a bit of a bump after iron ore prices shot up in the wake of the mining disaster in Brazil that will likely substantially curtain ore supply in the near future.

We’ll have to see if the raft of data will change the trend in the currency. We still have our long-term fibo levels intact, with support at 0.7050 and resistance at 0.7290.

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