AUS Interest rate rise

[mosdave]

Hi

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.

What am I missing here?

Cheers
Dave

[wangzhongpeng]

i understand what are you saying, but i want to know is have you trending the forex base on fandamental before? or just start to see this.

[mosdave]

Well, I'm pretty new to forex so I've been following the Cowabunga system which uses a few indicators and so is more of a technical analysis system.

I'm trying to use all the information I can for trading so I've been learning how fundamental factors affect currencies.

So to answer your question this is the first time I've been viewing the market from a fundamental view.

Cheers
Dave

[forexpeters]

heyi heard about the rates, they went up 3.6% didnt they ?

afre well guys

[tom82]

Originally Posted by mosdave

Hi

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.

What am I missing here?

Cheers
Dave

Yeah I been thinking that same thing.

[Jason Rogers]

Originally Posted by mosdave

Hi

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.

What am I missing here?

Cheers
Dave

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.

[mosdave]

Hi Jason

Thanks for your reply.

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.

Cheers
Dave

[tom82]

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.

Paste end here.

At the moment it is trading at 0.9015 approx

[forexpeters]

good thread

[tom82]

Originally Posted by tom82

...AUD price action was classic “buy the rumour, sell the fact”...

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 :-}