Investors are watching what happens in the seconds before the Reserve Bank of Australia announces policy on Tuesday almost as closely as the decision itself.
The Australian dollar has moved at least 0.6 percent in the seconds before each of this year’s three interest-rate calls, and each time the market correctly anticipated the exchange-rate impact of the policy decision.
Australia’s securities regulator said it discovered no evidence of misconduct in preliminary findings released Monday, and that the swings were the result of normal market operations amplified by algorithm-driven trading and a lack of liquidity. Swaps traders and economists predict the RBA will lower the cash rate to a record 2 percent at 2:30 p.m. Sydney time.
“This is the RBA that has surprised the market every month for three months, and yet someone is profiting handsomely from it,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore. “The draft made it sound like it was just algos, but every time it’s been in the right direction. I’m not sure we should be that sanguine.”
The currency moves were a result of “normal market operations in an environment of lower liquidity immediately ahead of the RBA announcement,” the Australian Securities and Investments Commission said in a statement. “Much of the trading reviewed to date was linked to position unwinds by automated trading accounts linked to risk management logic and not misconduct.”
ASIC is awaiting further information from market participants as it continues its investigation.
“I think they’re doing the right thing, which is, find out who’s doing the trading and drill down from there,” TD’s Beacher said. “We need transparency, and at the moment we don’t have it. And that does make some clients a bit nervous.”