AUD Currency Volatility: RBA Rate Review Eyed Post G20

(MENAFN- DailyFX) RBA SET TO STIR AUD/USD & AUD/JPY CURRENCY VOLATILITY AUD/USDandAUD/JPYlook set to post sizable moves in the spot currency market on Tuesday according to overnight implied volatility measures The Reserve Bank of Australia (RBA) is expected to cut its policy interest rate by 25 basis points and should serve as the catalyst that sparksAUDprice action Join DailyFX analyst Daniel Dubrovsky forlive webinar coverage of the RBA Rate Decision

Headed into Tuesday's RBA monetary policy update which is slated for release at 4:30 GMT, markets are largely expecting Australia's central bank to cut interest rates for the second time this year. In fact, OIS futures are currently pricing in an 83 percent probability that the RBA cuts its overnight cash rate (OCR) by 25 basis points and is up from the 74 percent probability priced by markets this past Friday before the G20 Summit.

While a higher probability of an RBA rate cut on Tuesday may seem puzzling on the surface due to the positive developments out of Osaka, Japan over the weekend, dismal economic data released earlier on Monday likeChina's Caixin Manufacturing PMIcould explain the unfazed rate cut expectations.

Driven by the high-impact event risk surrounding theJuly RBA meeting , Australian Dollar overnight implied volatility measures unsurprisingly skyrocket. AUD/USD overnight implied volatility was most recently clocked at 11.73 percent which is the highest reading since May 15.

Judging by the overnight implied volatility reading of 11.73 percent, spot AUD/USD is estimated to trade between 0.6921-0.7007 during Tuesday's session with a 68 percent statistical probability. Looking to technicals, the Aussie may see upside limited by the 0.7000 handle which aligns closely with the upper band of its 1-standard deviation expected trading range and the 50.0 percent retracement of its year-to-date high and low. Spot AUD/USD could climb if the RBA decides to hold off on easing monetary policy further. Conversely, AUD/USD could wilt towards support provided by the 20-day SMA and recently-broken downward sloping trendline.

AUD/JPY overnight implied volatility spiked similarly ahead of the July RBA meeting and currently stands at 13.57 percent which is also the highest reading since May 15. This compares to Friday's measure ofAUD/JPY 1-week implied volatilitymeasure of 10.85 percent.

According to AUD/JPY overnight implied volatility of 13.57 percent, the 1-standard deviation trading range is calculated to be 74.977-76.049. The option-implied band around spot AUD/JPY falls alongside technical support from its 61.8 percent Fibonacci level and technical resistance posed by the 50.0 percent retracement level of the currency pair's year-to-date trading range.

-- Written byRich Dvorak , Junior Analyst forDailyFX.com

Connect with@RichDvorakFXon Twitter for real-time market insight

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