I’m trying to learn about how fundamental economic factors affect currencies and today I was reading about interest rates. According to the literature I was reading a rise in interest rates stimulates foreign investment which leads to a demand for that currency and so drives up its value.
Today I saw that the Australian central bank increased its interest rate by 0.25% to 3.5% so I expected the AUD to rise somewhat against other currencies but it seems to have lost value which I don’t understand.
If I look at the exact time the figures were released the charts show not much movement and then a downtrend.
It was expected that the RBA would raise rates. The information was priced in; therefore, traders are going to look at the announcement to get an idea about future rate increases. The RBA statement indicated they may not raise rates next month.
The next RBA meeting after December is in February. So if rates don’t go up next month, it could be 3 months before rates potentially go up again. Not bullish for the AUD.
Naturally, hindsight is 20/20 being able to read through the statement and look at the details. But what this shows is that the market can react opposite to what makes sense initially.
That makes a lot of sense. I see now that the rise in interest rates was no secret and so the market had already adjusted prior to the official announcement.
I now also see why it’s important to try and interpret federal reserve statements about possible future rate changes in order to trade more effectively.
Hi all,
Just read the report my broker sent me, I will paste some of it here for you regarding the AUD and RBA.
Paste as follows:
AUD price action was classic “buy the rumour, sell the fact”, Aussie rallied to 0.9089
pre the announcement and was sold off down to 0.8917 in overnight trade.
The market had already factored in a 25 basis point rate hike and was sold off
accordingly.
Aussie found support at around 0.8910 where bargain hunters came in and bought
dips.
The Aussie has bounced off these lows, currently trading 0.8997; professional
traders have been waiting to buy Aussie on a retracement down to the low 89 cents
level in the last few trading sessions.
I had heard or read this somewhere awhile ago and now I remember it, now that I read it in that report from my broker, lol.
Being new, I did not think much of it or in what circumstances this occurs.
Have learnt something :-}
Both seem to be comprehensive and they both have their respective economic / release calenders.
Also they have an email release notification service, however the ABS email notification does not get sent at the same time as the release - it is delayed somewhat, though the appropriate page gets updated at the release time and news services have access to it at the release time.
They have a special release room at the ABS (Sydney office) where the media go in and get access to a hard copy of the release on release time and they are able to contact their editors verbally to report data via landline telephones, it is also a pilot program with a select group of news agencies.
Don’t know if this site is of interest or not, but here goes:
The Australian Foreign Exchange Committee rba.gov.au/AFXC/index.html
(Also has links to other forex committees)
While we are on the topic of central banks, I was wondering what we should be reading / following and being aware of.
Apart from following central banks rates and statistical economic indicators being released from the statistical agencies what other releases should we be following/ reading?
eg: central banks statement on monetary policy, central bank governors (or other officials) speaches
Just wondering if we can put a list together here somewhere on the forums.