The Reserve Bank of Australia has decided to keep rates on hold at 1.5 per cent, citing the outlook for the global economy remains reasonable.
In particular, Governor Lowe said, ‘The Australian labour market remains strong. There has been a significant increase in employment, the vacancy rate remains high and there are reports of skills shortages in some areas.’
One of the key statements made today was around household consumption, with many analysts suggesting this is opening the door for a rate cut sooner, rather than later.
Lowe added, ‘The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected and this should support consumption.’
The Reserve Bank has come under increasing pressure to cut, and analysts were evenly divided for today’s decision.
The Australian dollar reacted positively, rising back above the 70 cent mark.
Leading up to the RBA rates announcement, you will see the market edged higher, but only by a handful of pips.
As soon as the announcement broke, the Aussie dollar dipped lower, seemingly taking out several stop losses, only to rebound 55 pips higher in seconds.
Intraday traders and more specifically, news traders, love this type of volatility, keeping their position sizing nimble so they can move as the market dictates, with speed.
The main blue line shown below is the common resistance point. Traders had no issues taking that out with some reports suggesting as much as a 49% chance to cut rates today.
So the news was seen as positive, with traders buying up the intraday lows.
More positive news can be seen for technical Aussie dollar longs on the hourly chart as it has broken through two key lines of resistance.
Bullish divergence – one of the most powerful signals
Zooming in closer, you can see a strong bullish divergence signal on the daily chart below.
The price action saw the lows getting lower while the stochastics was making higher lows from oversold.
Bullish and bearish divergence is often noted as very strong signals by traders but is very hard to locate.
Stay tuned across the AxiTrader Twitter account as we actively scan for these signals daily.
Leading up to today’s rate decision, you can see the Aussie dollar has been struggling. The downtrend has been steady across 2018, dropping over 1,100 pips from high to low.
The long-term moving average has been negative since April 2018, with barely a pause, with the downtrend gaining pace in the last few weeks.
But Dow Theory exponents would be very interested in the basing pattern going on right now. This basing pattern started when the low was hit at the start of October 2018.
We’ve now had nearly eight months of a basing pattern. Could this be enough to trigger a long-term reversal from the lows around 69-70 cents back up to 73-74 cents?
The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.
Stocks recover as Fed Chair Powell says, "The job is not done"; Oil's raging bull and FX's roaring commodity currencies