How to Trade Australia's Interest Rate Move

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Australia's central bank is likely to cut interest rates in the next few hours. Here's how to trade the move.

Australia has been contending with a passel of discouraging news, from disappointing domestic economic reports to signs of a slowdown in China. The impending interest rate decision from Australia's central bank has the potential to add to the pressure on the Australian dollar, says Amelia Bourdeau, director of foreign exchange at Westpac Institutional Bank.

"Economists believe that there will be a 25 basis point cut this evening, but interest rate futures are pricing in a little more," she told CNBC's Melissa Lee.

The concern, Bourdeau says, is the deterioration in global confidence, along with risks like the upcoming Greek election. "The RBA wants to get out in front of that and cut interest rates now in case there's an external shock."

Bourdeau thinks it's a good time to sell the Australian dollar regardless of whether the central bank cuts 25 or 50 basis points. "If they cut 25 basis points, they're likely to have quite a dovish statement," she says. "If they cut 50 basis points, it's actually a little more than the market has priced in right now. Either scenario is going to weigh on the Aussie."

So Bourdeau wants to sell the Australian dollar against the U.S. dollar, entering the trade at 0.9730. She recommends a stop at 0.9830 and a target of 0.9500.

You can watch the discussion on this video.


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