Economic Data To Impact Binary Options Trading On AUD/USD

On Monday 5 October at 11:30 PM, the Reserve Bank of Australia (RBA) will announce its decision regarding interest rates. The Australian interest rate was previously measured at 2%, but in the 25 years between 1990 – 2015 the Australian interest rate averaged 5.04%. In much the same way as the Fed in the U.S., interest rate decisions have a seismic effect on the value of currencies. If the RBA decides that the Australian economy has recovered sufficiently, a decision to raise interest rates would theoretically be justified.

By raising rates, the RBA is effectively embarking on a policy of quantitative tightening at a time where struggling economies in the region are adopting quantitative easing measures to stimulate economic activity by increasing the velocity of money flow. It is particularly interesting to evaluate the impact of an RBA rate hike on the AUD/USD pair.

What Factors Should We Consider in the Upcoming RBA Decision?

At 04:30 AM GMT, the RBA will announce its decision vis-à-vis interest rates in Australia. The forecast rate is 2%, the consensus rate is 2% and the prevailing interest rate is 2%. Given that the International Monetary Fund (IMF) has been pressuring central banks around the world NOT to raise interest rates at this critical juncture, it is safe to assume that the RBA will follow suit. Indeed, the world’s strongest economy – the U.S. – decided against hiking rates at the last Fed pow-wow on September 16-17. That Janet Yellen and the FOMC decided against raising rates surprised a few people. But the weakness in China is causing all sorts of market anxiety, coupled with excessive downward pressure on commodities prices across the board.

If Australia adopts a dovish tone, the RBA will refrain from making changes. The AUD/USD pair will not be adversely affected. A rate hike on the other hand will cause the AUD to become more valuable relative to the USD and greenbacks will be exchanged for Australian dollars. Since the yield on USD is low – in terms of cash holdings, CDs or interest-bearing accounts – the AUD would  be inherently more attractive to international investors.

The Strength of the Australian Economy

·         The jobless rate declined to 6.2% in August 2015

·         The GDP annual growth rate was measured at 2%

·         The core inflation rate was last measured at 1.98%

·         Personal Disposable Incomes are up (277349 vs 272540)

·         Consumer Confidence was measured at  93.9 (marginally lower)

·         The Services PMI was measured at 55.6 (expansionary > 50)

·         The Manufacturing PMI was measured at 52.1 (expansionary > 50)

The majority of the data in Australia, with the notable exception of commodities weakness, points to a robust economy which can withstand a rate hike. However, China weakness, recessionary fears in Japan and a Eurozone on the mend are cause for concern. Low commodities prices are keeping inflation down in many countries around the world, with energy stocks particularly vulnerable.

Australian Stock Market Performance over 1 Year

The University of Melbourne is expected to release its inflation estimate this morning. Annualized inflation was measured at 1.7% for August. Should the rate of inflation increase, this would warrant an interest rate hike by the RBA. Of equal importance is the Australia & New Zealand Group’s data regarding jobs posted in Australia for September. Should this figure rise above the August number, it will bode well for a rate hike by the RBA. And in any event, an increase in employment will bode well for the AUD/USD pair if only slightly, but a decline in the number of jobs will totally derail confidence in the AUD/USD pair and spur a selloff of the loony. Put options will be the order of the day if the jobs report is bearish.