AUD/USD: The Argument by Dane Williams

The Socceroos won the final of the 2015 Asian Cup on Saturday, but the country has another ‘cup final’ of a different variety to be played out in the boardrooms of the RBA’s Martin Place headquarters on Tuesday when the board make their decision on interest rate policy.

I can’t remember an RBA meeting with as much hype around it as this one. Every man and his dog seems to have an opinion on which way Stevens will go and I thought I’d take another step forward from my AUD/USD Narrative post and give my two cents looking at AUD/USD from a trader’s perspective.

In it’s simplest form, it is no longer a question of will they cut rates, but rather when will they cut rates and by how much. You can get access to every Australian retail bank’s opinion on whether they will cut or hold off for another month but to be honest, it’s mostly garbage to the market.

What the market did listen to however, was ‘Australian Interest Rate watcher’ Terry McCrann in his News Limited article on Thursday, making the bold, almost certain prediction that the RBA will cut interest rates on Tuesday.

So on the back of the market getting hammered off a News Limited piece (if you’re a reader of their publication in Aus… lol), the next question a trader needs to ask is what’s been priced in? AUD/USD has been nothing short of hammered last week but is sitting at a little buy zone on the daily.

Sitting where we are on the daily and with the market so obviously short heading into the start of the week, I think the risk is now a lot greater if you’re choosing to play from the short side rather than the long.

It doesn’t matter if I think the RBA will cut rates, or the economics behind why they should or shouldn’t and if I gave an opinion then just like each of the retail bank economists publishing their thoughts, it would be just that. An opinion.

As a trader, the only question I want to ask here is how can I define my risk and allow for a potential move to play out on whichever side I pick to trade from.

Thinking that everyone is overly short and the risk heading into the RBA decision on Tuesday is a squeeze back up to that 80c level, I want to be buying anything at the bottom of these ranges marked in blue. Risk here is clearly defined with stops below the zone and this is the play I’m looking to take.

The big trading question then becomes if you get onside enough, do you punt on an unchanged call and hold into the announcement… Something for later if the scenario plays out.

Dane Williams – @danewilliamsau

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