By Chris Becker
More scuttlebutt this morning around “leaked” RBA decisions. First from Eamonn Sheridan at ForexLive has it right:
3 decisions, and 3 consecutive times the markets have moved in the correct direction in the seconds leading up to the announcement.
The RBA have conducted an investigation and in the previous Minutes said the movement ahead of the announcement is all just a lack of liquidity.
Yeah, right. Thats pretty much all I need to get every single trading decision right, a perfect 100% record (so far this year), just a lack of liquidity and all of a sudden I know perfectly which way the Board is going to go and which way the markets are going. FFS.
As someone who trades these announcements, I can tell you the only problem with liquidity is expanding spreads just before and after the decision, with trading still ongoing (perhaps unwinding beforehand). Eamonn continues with this left hook:
Anyway … a lot of the blame is being laid at the feet of the high frequency traders and algos (the two are often used, wrongly, interchangeably, but I’ll let that go for now) for the early info. But … its time to stop blaming the HF and algo traders.
‘Cause we got a decision coming up tomorrow from the RBA (0430GMT on May 5). And, we don’t need to wait for the decision – it’s a 25bp cut.
He’s referring to the new Terry McCrann of interest rate spotting, Peter Martin at the SMH – although he has tack and guile in spades compared to good old (push him out the day to retirement) Terry. His article back on Thursday where he stated “the RBA will be forced to cut” due to the recent (but short lived) surge in the AUDUSD was all but confirmed by the Pascometer over the weekend.
Also today, ASIC released a statement updating their look at “the trading behaviour of a number of foreign exchange markets and platforms including interest rate futures markets and CFD platforms providing foreign exchange markets” i.e not the RBA itself (emphasis added by me):
ASIC today provided an update on its investigation into the movements in the Australian dollar shortly before the Reserve Bank’s monetary policy decisions for February, March and April 2015.
The enquiry is investigating trading in the dollar in the minute prior to the RBA’s interest rate decision statement at 2.30pm. ASIC has made extensive enquiries into the management of the information flow regarding the RBA’s interest rate decision prior to the announcement of this decision.
Preliminary findings reveal moves in the Australian Dollar ahead of the announcement to be as a result of normal market operations in an environment of lower liquidity immediately ahead of the RBA announcement. The reduction in liquidity providers is a usual occurrence prior to announcement in all markets. Much of the trading reviewed to date was linked to position unwinds by automated trading accounts linked to risk management logic and not misconduct.
That makes sense. I also unwind most of my positions (or change their stops) before the big red flag decisions like unemployment, rates, NFP etc. It still doesn’t explain the direction of the changes, although ASIC puts this down to a “distortion”:
In particular, ASIC has observed liquidity being withdrawn from the market at the same moment as participants already positioned were considering their risk exposure too large ahead of the announcement and reducing their position. This lack of liquidity distorted the execution logic in the algorithms of some participant systems.
This, along with a fall in trading volumes leading up to the release of key market data, means trades may have had a more pronounced impact on the price than they otherwise would.
But why only in the last 3 months? That question remains unanswered and the “leak” option very possible.