What happened in Aussie land last night?

Posted Tuesday, August 2, 2016 by
Skerdian Meta • 2 min read

As my colleague, Eric Furstenberg pointed out in the early hours of the morning, the RBA (Royal Bank of Australia) had their interest rate decision and the statement publication scheduled at 04:30 GMT. The market was widely expecting the RBA to cut the interest rates by 0.25%, from 1.75% to 1.50%. They did cut the interest rates and the Aussie fell nearly 80 pips. No matter how much the market might expect it, a rate cut always brings a reaction in forex, at least a knee-jerk reaction.

So long RBA, the Aussie is going the other way

 It was indeed a knee-jerk reaction because the AUD bounced back and is now about 30 pips above the level it was before the RBA announcement. So why the bounce, even though the rate cut was somewhat priced in? After all, an interest rate cut is a dovish action by the RBA. Well, the comments in the statement were sort of mixed. It looked like the RBA members were trying to sound dovish, a little too hard in my opinion, but they couldn´t find enough reasons to be really dovish.

It´s like when someone is trying to bluff but you already know his cards are worse than yours. So, that´s what happened in the Aussie land overnight, the statement didn´t offer enough clues or even reasons that another interest cut is in sight so the forex market and the forex traders packed their bags and jumped on the long AUD train. We all know how the forex market works, all the forex traders concentrate on a coming event and once it is over the attention turns to the future, no matter the outcome of the previous event. In this case, the forex market doesn´t see any interest rate hikes in the foreseeable future so the AUD is going up, despite the rate cut. 

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