RBA overview
The Reserve Bank of Australia (RBA) will announce its decision on interest rates at 2:30 pm AEST am in Sydney, Australia, 4:30 am GMT.
The central bank is widely expected to cut the official cash rate by 25 basis points to a new record low of 1.25% in an effort to restore the labor market strength and keep the economy on track to achieve an inflation rate of 2–3 percent, on average, over time.
The central bank last cut rates by 25 basis points in August 2016.
Markets priced in for two rate cuts
Australia's overnight index swap (OIS) curve currently shows the markets is expecting the central bank to cut rates by 25 basis points today and in September. Overall, there is more than 80% chance of two rate cuts this year.
Notably, markets brought forward expectations of a 25 basis point rate cut to June over the last four weeks or so.
This is evident from the fact that the 10-year Aussie government bond yield fell 36 basis points in May. Further, the two-year yield, which closely tracks rate expectations, slipped by 28 basis points. Also, the two-year yield, currently at 1.125%, is down a staggering 80 basis points.
So, it seems safe to say that the market is fully priced in for two rates cuts.
The AUD, therefore, may pick up a strong bid if the RBA cuts rates as expected, but refrains from signaling an aggressive easing.
The Australian Dollar, however, may feel the pull of gravity if the policy statement signals aggressive easing, forcing markets to price in the possibility of rates falling to 0.75% by year-end.
Technically speaking, the AUD/USD pair seems to have carved out a short-term bottom at 0.6865 and looks set to test the 50-day moving average (MA), currently at 0.7020 with the 14-day relative strength index (RSI) biased bullish above 50 and the 5- and 10-day MAs trending north.
About the RBA rate decision
RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.
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