Why Did The Australian Dollar Move Before The RBA Announcement?
Every month there are a few key events that are guaranteed to move both the stock market and the Australian dollar.
The largest event by far is the monthly Reserve Bank of Australia (RBA) announcement where it lets the public know if it will increase, decrease of keep rates on hold. Forex training courses such as the two day Traders 4 Traders session focus on these events with the aim to be the first to trade based on these announcements to beat institutional traders which are responsible for the bulk to traders. The difference though is that in March the market moved one minute before the announcement as the graph below highlights.
Theories As To Why The Market Moved Before The Announcement
1) Insider Trading
In 2014 the headline news that came out was that a NAB foreign exchange trader was receiving confidential information from the Australian Bureau Of Statistics (ABS) before the market. This allowed him to make trades minutes before large announcements were made (such as a rate announcement) leading him to make $7 million dollars over several years. While he was eventually caught it was only after some time and some straightforward mistakes leading the authorities to work out his association with the ABS employee.
While at the NAB a trader made $2,509,776 in a very short period of time, yet this still wasn’t enough to move the market to the extent that the AUD moved on the 3/3/2015. Based on this we can most likely rule out as the cause.
If you still believe this is the correct scenario you would be supported that a similar event occurred in February when the dollar went down by just under one percent 10 seconds before the rate cut information was made public to the market.
2) Automated Trading Machines
More and more trading on forex markets and the stock exchanges is not from people but computers. These powerful computer systems have inbuilt mechanism that they base their buying and selling on. While the proportion of the market trading through these computer has gradually increased it still doesn’t explain why the rise in the AUD was so strong one minute prior to the announcement. It could be argued though that recent trends of minimal trading just before these events is leaving such low liquidity that any movement is amplified leading to more movement that currency markets are used to.
A source outside of Australia who has strong knowledge of the fx markets viewed the hundreds of orders made in the seconds before the announcement which exceeded $500m. Based on this volume estimates view that profits could be $2.5m prior to the release and $5m afterwards.
3) Incorrect Posting Of Data
While the Reserve Bank of Australia is confident it published it’s announcement online at exactly 2:30pm, there is the possibility that somehow it was published early or that the information could be accessed early. An example would be a hacker who was able to access the information behind the firewall just prior to the announcement.
If there was such a leak or hack it is clearly compromising the market and leading the huge movement before the actual announcements which take away unique events for individual Australia forex traders.
How Will The Government Investigate The Matter?
The advantage of the forex market is that all trades both past and present are logged by forex broker software. This allows for governing bodies to get information off forex brokers to understand what traders made and loss money. The only issue is that high frequency computer programs are making it difficult for the watchdog to catch any illegal activity which may themselves have been manipulated with inside information.
Overall, this is a unique situation for Australian authorities and with two irregularities in a row occurring in a row the forex market will be looking for certainty to bring confidence back into the market.