Reserve Bank of Australia has raised interest rates for the second time during its policy meeting today. Benchmark rate was hiked to 3.5% from 3.25%. No surprise of any kind, this move has been widely anticipated. This makes the Australian Dollar to be the highest interest bearing currency among the established economies. Differences between AUD and other currencies are starting to become significant. With the exception of New Zealand, where current rate stands at 2.5%, interests everywhere else are, well, symbolic, marginal at best. Having this in mind, it could be surprising that Aussie sold off on the news. not in a dramatic fashion, but 100+ pips in AUD-USD in a few hours makes for a good trading day. By now large portion of these losses was recovered.

Comparison table of the interest rates among major central banks. RBA stands out with the highest percentage. Dates of policy meetings for other CB’s are also indicated here. Notice that we have more of these events scheduled for this week. FED is next followed by European Central Bank and Bank of England on November the 5th. Nobody expects surprises, but you never know.

With interest rate differential widening, one could argue for appreciation of Australian Dollar on account of the carry trade. AUD has already managed impressive gains this year, but seems to be stalling on technical merit. I covered it to a degree in Commodity currencies turning post, using NZD-JPY as an example. Large scale charts were used, so not much changed in them from yesterday, but it certainly looks to me that first stages of a corrective move are under development. later on this week I will return to that theme, once we see a little more price “painted’ on charts.

Last post also had a mention of me closing a trade in AUD-CHF, originally introduced in a post about SNB and its interventions. In principle, this trade is still valid, but I don’t like how the price is behaving. Intermediate chart formed fairly tight, nice reversal pattern. The breakout, however, was anything but. Price became wide, lacking direction and any conviction. And I lost mine. After original move out of base this cross moved right back to 100 SMA, which acted as a ceiling. In most instances, I’d look to either take losses there or place another order. I did neither, lost my focus and any conviction I had. Sunday evening position was closed for a minor gain. Moving on.

Here is something I have not posted in a long time- short term trade in the beast. I use 5M charts for that and trades are most of the time bullish, so some days are without a trade. Today GBP-JPY presented a nice buy set up, with an entry at 147.33. Target was set at 148.00, which was reached.  Not much else to add. Over next 1-2 days I will try to take a look at EUR-GBP again and look for trades there. Plethora of announcements from CB’s could create very choppy environment, but I don’t think longer term charts will be effected. We’ll find out soon.

Mike K.