This week is abundant in big economic reports and figures and last night we just had the first Central Bank announcing its interest rate decision. Despite the market consensus for a 25bp cut, RBA "unexpectedly" disappointed the market and decided to keep the key interest rates on hold at 2.25%.

RBA interest rate decision is an BINARY event that can have only 2 possible outcome:
  1. Either RBA delivers a rate cut.
  2. Or keep rates on hold
in which case we have a non-event. However taking in consideration that the market sentiment was heavily leaning in one side of the outcome (a 25bp cut) as all 4 major Australian banks expect RBA rate cut, and the market was pricing 62% probability of 25 bps cut, we got a squeeze higher.

As usually when the majority of the market participants are positioned in one side of the market we go the other way and this was true here as well.

If you would have played the RBA rate scenario more intelligently you could have shifted the odds in your favor and have a higher probability to forecast the outcome of RBA rate decision by simply looking at the aussie 90 day bill which has predicted 23 of the last 24 RBA decisions correctly.

The March 90d bill yielding 2.24% was suggesting a no rate cut today and the Jun contract yielding 2.03% was saying 25bp cut before June.

Figure 1. AUD/NZD RBA Rate Decision Trade


Due to all this factors and many others, which I'm not going to discuss it here, this rally will be short lived and I think it will be a good opportunity to fade it and establish some short positions, however timing still remains key as it can take up to few days to reverse the current move.

My only trade, on the RBA rate decision was long AUD/NZD (see Figure 1) which provided also a good technical spot that was supporting the long side. I was lucky enough to get an order fill and also to be able to get out fast from this trade as my profit target area was hit very fast and got filled right at the highs, which is nice.

Due to other reason I also had a long EUR/AUD position but I was smart enough to close it right before the RBA rate decision.

Best Regards,
Daytrader21
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