ASX should take a positive lead from Wall St's ~+0.5% performance relative to our last close, all eyes on the RBA at 2:30pm

The Reserve Bank of Australia will announce its rate decision at 2:30pm today. While economists and the market (via cash rate futures) strongly believe that the RBA will cut to 2.00%, there is not a strong consensus as to whether it will be today or next month. If the cash rate futures are correct, the RBA will cut today. It doesn't matter so much which month the next cut takes place (unless you're taking risk through currency or interest rate markets today), so long as it actually happens and doesn't upset the market; however, the latest falls in the iron ore price (US$47.08) only continue to erode the foundations of the May Federal Budget. It's little wonder the Government has stepped up its marketing of the latest Intergeneration Report, and this is beginning to look like the catalyst for change that the Australian economy has required since risk capital for new industries got burned from the tech bubble. While much of this report will focus on the need for more Australians to work more productively and for longer, it may also help to place political importance on industries that will help create the number of new jobs required in order to stem growing revenue shortfalls. Could we see the majority of the electorate force politicians to engineer a well-researched and high conviction vision to win votes rather than rely on taking pot-shots at each other's past economic management? I hope so.

Coming into today's 2:30pm (Sydney) decision, the Aussie dollar (today's first chart) remains near its recent lows, trading just below US$0.76. Traders will be ready to turn this level into selling resistance and push the Aussie lower if there is a cut today, but I'm not so sure we'll see a big bounce if the cut is deferred until May, assuming that the market continues to read this situation as resulting in an inevitable cut over the next month. For those wishing to trade the Aussie today, the wise move would be to sit on the sidelines until after the announcement has come out and the volatility has died down, and then place a trade going 'with' the rate decision (sell if they cut, buy if they don't) a couple of hours after just as local intra-day bets are unwound and the European session begins to digest the news.

Today's second chart shows the S&P 500 futures (orange), which have continued to trade while the ASX (black) shut down last Thursday. So you can see that the US market has run about 0.5% ahead of ours since our 4pm close, and this won't be incorporated into the ASX futures, which will be showing a negative 9 point lead from their close that you can see on the chart. So we could see a healthy start today, but unlike the last rate decision day we're not quite in range of the 6,000 mark - but expect a fine day nonetheless.

Finally I've charted WTI crude oil (OILUS), which I've been covering quite consistently lately. I believe that this is now looking like a low-risk short trade set-up, as it nears the US$53.20 selling resistance level. For those interested in this trade, you might like to sell at or around present levels with a stop buy at this year's intra-day high of US$54.20, should the trade fail. Given the risk, one should look to take at least US$3 per barrel profit from this trade as a target, or continue to hold and look for lower levels, trailing your stops to break-even and then by a couple of dollars at a time beyond that. As noted recently, I believe there remain too many fundamental reasons to sell oil for a break above its recent range to be probable.


Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: Australian AiG performance of service index at 9:30am, RBA rate decision at 2:30pm, Bank of England March minutes released at 6:30pm, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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