AUD, USD Rallied on Surprise Interest Rate Cut

AUD, USD Rallied on Surprise Interest Rate Cut

I'm here to share some of my thoughts on forex day trading for those who are interested in the AUD/USD currency pair (referred as AUD) and aims to achieve financial freedom by trading forex online.

RBA's Decision

On the day of Melbourne Cup (An Australian tradition for those unaware), Governor of the Reserve Bank of Australia (RBA) - Glenn Stevens gave the forex market another surprise by cutting interest rate 25 basis point more than expected. The decision was heavily influenced by the turbulence experienced last month in the world financial markets as we witnessed Australian dollar swinged between 0.8000 and 0.6000. Despite, inflation for the month peaked at 5% (2% above RBA's target range); RBA believes that the disinflationary force will soon kick in and hence will place more focus on easing the domestic borrowing market. (See RBA's statement)

Market Reaction

Surprised by forex market's reaction, AUD doubled tested the support level at 0.6590 and soon began a massive rally which was trading above the 0.6855 resistance level. Some analysts see this rally of AUD as a reward for RBA's proactive steps to prepare the nation for the economic slowdown. Overnight in US, stock trading gained 3.3% on Election Day as Oil and Gold also gained significant level and hence pushed AUD trading even higher, attempting to break two week high of 0.7000. Click here to see Chart [http://forextradingscoop.com/audusd-rallied-on-surprise-interest-rate-cut]

Forex Trading Strategy

Short term strategy for AUD is purely based on technical analysis. I would watch for whether forex trades above the 0.7050 level, this potentially will began another uptrend heading the 0.7239 level. On the downside, if AUD breaks the recent backed support level of 0.6855, then we could be soon seeing it trading at 0.6500 again.

Medium term strategy, SELL AUD/USD. More aggressive rate cuts are very possible by the RBA in the future. As the forex market view the Australian economy as a Commodity nation which dependent on China's resource demand is bound to suffer further. Second, as more bad economic news yet to come globally, we will soon see volatility back in the forex market which will lead to unwinds of carry trades by the hedge funds and bid up the safe low-yield currencies like the US dollar and the Japanese Yen.

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