Australia's central bank RBA released minutes of its Feb meeting which revealed that the central bank will likely be keeping interest rates steady at record-low in order to aid growth. RBA has also highlighted that there are inflationary pressures, but dismissed it saying that the numbers likely "contained some noise", and that it is "something of a puzzle" that economic activity is low but prices are lifted. All these isn't really news, as Chairman Glenn Stevens has already said something along the same lines during the latest rate decision. Nonetheless, AUD/USD reacted bullishly, climbing to a high of 0.908 following the release of minutes.
Hourly Chart
AUD/USD Hourly" title="AUD/USD Hourly" height="242" width="474">
What is even more interesting is that prices actually traded lower initially, falling from 0.904 to 0.9015 before rebounding higher. This is a clear sign that the minutes itself does not really provide a clear directional cue, and the strong bullish reaction that has sent prices up may be an overreaction/over-eagerness in buying AUD/USD by the underlying bulls. This assertion is not far out as the uptrend since 13th Feb is still in play. However, this would also imply that the likelihood of a 0.907 break from here may be unlikely, and a move towards 0.9015 becomes possible. Stochastic indicator agrees as Stoch curve appear to be topping soon, suggesting that a bearish cycle may be in play in the near future.
Price action also favors a bearish move. The rally has not only failed to clear 0.907, but perhaps more critically failed to breach into the rising Channel that was previously in play. As such, there is a risk that the bullish momentum may have been invalidated, and we could potentially even see prices pushing below 0.9015 towards 0.90 and other support levels beneath.
Daily Chart
AUD/USD Daily" title="AUD/USD Daily" height="242" width="474">
Price action on the daily chart is a mixed bag though. On one hand, prices bias is bearish as we have yet to even test the previous swing high seen on 14th Jan. On the other hand, prices have traded above the highs of Feb 12/13th, suggesting that the bullish momentum from late Jan's is still in play. Stochastic readings isn't really helpful either as Stoch curve is extremely Overbought but both Stoch and Signal lines are still pointing higher, hence even though we suspect that a bearish cycle is coming, we cannot deny that strong bullish momentum is still in play. Furthermore, as counter-trend signals from oscillators tend to be unreliable during strong trends, the possibility of a 0.907 break and a move towards 0.916 cannot be wilfully ignored. As such, conservative traders may want to wait for further confirmations before committing into any mid/long-term positions.
Aggressive traders on the other hand may see this as a perfect opportunity to short AUD/USD right now with a target of 0.866 and below. But in this case they should note that prices can still go up as high as 0.93 before broad bearish pressure can be invalidated. Considering that carry interest of AUD/USD is still the most expensive amongst all major currency pairs, aggressive traders will need to weigh the potential risk/reward should they decide to short now when there is lack of directional clarity.