Tuesday, March 3, 2015

Data leak in Aussie rate release? | Housing bubble fear behind surprise decision

We are always impressed with the precision with which central banks, statistics bureaus and commercial rating and research organisations are able to time their releases. The economic calendar is an invaluable tool for traders, made all the more so by the fact that the various releases can normally be depended upon to come at exactly the time they are supposed to, according to said calendar. To the minute.

Sometimes it can be noted that market participants will take a view on what the relevant announcement will be, and this will be reflected in the exchange rate movement in the run-up. Sometimes they get it right, and very often they get it wrong. On occasion, the move immediately after the announcement can be counter-intuitive, and very often, for the more important announcements, there will be considerable short-term bidirectional volatility as the institutional analysts attempt to work out the consequences.

Yesterday morning, in GMT terms, the Reserve Bank of Australia decided, against the widely held expectations of the Forex market, to forego an interest rate reduction. As a cut had been priced in, this would have been expected to cause the Aussie to rise, which it did, except that in this case the rise was in the moments before the announcement was made.

Now commentators and traders are calling foul. There is a strong suspicion that there was an information leak to selected market players before the announcement. The relevant authorities in Australia are investigating. It is to be hoped they will be able to ensure that such skulduggery will be nipped in the bud.

Housing bubble fear behind surprise decision

As the governor of the Reserve Bank of Australia, Glenn Stevens, is on record as being less than enamoured of the so-called macro-prudential policies that other central banks have been using to limit the issuing of mortgages for house purchase, such as loan-to-value limits and other restrictions, it comes as less of a surprise to find that he and his colleagues have decided to continue to rely on the core interest rate to discourage a housing bubble Down Under.

This is the main reason for not reducing the cash rate. There are compelling economic arguments for such as reduction, but we will either have to wait for it, or the Australian economy will have to continue to grin and bear the effects of a high Aussie dollar.

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