The Reserve Bank of Australia has been the leading central bank among the major economies in tightening monetary supply. After the panic of 2008, the RBA was the first central bank to start increasing interest rates. During 2009 and 2010, it hiked the benchmark few times to 4.75%. However, in spite of high expectations and inflation threats, this year there was no action by RBA. Now, with the Australian Dollar still way above parity with the USD, some think expect rate cuts. Last Friday Westpac became the first major domestic bank to forecast interest rate cuts from Australia's central bank in the coming months. Citing rising offshore risks, including the debt concerns growing in Europe and the U.S., Westpac said it now expects a 0.25% rate cut from the Reserve Bank of Australia in December. By the end of 2012, Westpac predicts a full 1% point of monetary easing in rates. So far, no other major bank expressed a similar opinion, but I would not be surprised if that changes, if the RBA does not hike rates within next couple of meetings. Even though the Aussie is still at historically high valuations, it reacts negatively if news is not rate positive. For example, the minutes of the last RBA meeting showed disclosed a rather neutral stance, perhaps a little cautious, but the AUD sold off about 40 pips immediately. There was no mention of rate cuts, but the lack of explicit intent to hike was enough to get currency lower. In this environment, more comments like the one from Westpac can easily send the AUD down with some authority. In the last update, I discussed a possible long trade in the USD-CHF. The idea was to go long at 0.8205, looking for 100 pips. While the trade is on, it is not as quick as I had hoped for. The initial breakout was nice, pushing the rate up to 0.8275 or so, but has since deteriorated. Currently the trade in slightly positive and is valid. For now. Other CHF pairs delivered better results. In case of the EUR-CHF, for example, I manged to pocket 182 pips. The entry was at 1.1553, at virtually identical set as in the USD-CHF (here it is shown on a smaller time frame, 1H). I was hoping for 1.1750 objective – the price hit it in the ask, but not the bid and started to slide, so I decided to bail. It will be interesting to review long term charts at the and of the week, to see if the major trend is showing signs of reversing. That could possibly set the stage for a 1000 pips rally. Must wait, though. Another possible trade covered early in the week involved the GBP-CAD. I still have a buy order at 1.5540, even though it is not likely to be filled really soon. The Canadian Dollar enjoyed couple of days of positive fundamental news and the GBP-CAD moved lower. At last on Wednesday there was what I see as promising bullish set up. The price made new low, but failed to close there, followed by a hammer, which prompted my entry. The objective is modest, 100 pips, and the risk is tolerable.

Source