ASIC says Australian dollar spike in April reflects normal market operations

The Australian Securities & Investments Commission (ASIC) has earlier this morning provided an update on its investigation into the spike in the exchange rate of the Australian dollar against the US dollar shortly before the Reserve Bank of Australia (RBA) announced its decision on key interest rates on April 7th.

You may recall that it took only several minutes to the AUD to gain 90 pips against the USD on the morning of April 7, 2015. ASIC considered this rise as a sufficient reason to look at the situation further. It also ventured to investigate currency moves ahead of the Reserve Bank’s monetary policy decisions in February and March this year.

The watchdog said today it had made extensive enquiries into the management of the information flow regarding the RBA’s interest rate decision prior to the announcement of this decision. In addition, notices to produce trading information were sent to many financial institutions and platform providers to understand the basis of the trading on these markets at the point in time of interest.

Preliminary findings show moves in AUD ahead of the RBA’s announcement were 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.

In particular, ASIC has observed liquidity being withdrawn from the market at the same moment as participants already positioned were considering their risk exposure too large ahead of the announcement and reducing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.

ASIC Commissioner Cathie Armour noted ‘The Australian Dollar being ranked the fourth most traded currency pair traded by turnover must be seen to be fair, orderly and transparent.

‘ASIC has as a priority to promote confident and informed participation by investors and consumers in the financial system. This is achieved through our role in market supervision and competition, and corporate governance.

‘We have a strong regulatory framework that will enforce and give effect to the law if we find issues regarding confidential information or manipulative trading in any market that affects Australia’s well-being.’

ASIC’s enquiries as to the cause of the swings in the currency markets continue.


Chart courtesy:

To view the official announcement, click here.

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