The RBA Board meets next Tuesday with its interest rates decision announced at 2.30pm, AEST, but the other thing everyone will be watching in the seconds leading up to the announcement is any sudden price action on the Aussie dollar before the Statement.
There were suggestions – since investigated by ASIC, which gave the RBA the all-clear – that some sort of leak led to the movements, but they were most likely sparked by low levels of liquidity and an automated Forex robot.
However, if that’s enough to spark the concern of the regulator, then surely ASIC needs to check and see if anyone’s been speaking out of school, backgrounding journalists on the RBA’s intentions after a story appeared yesterday, which knocked 1.5 cents off the Aussie last night.
I’m serious – millions of dollars changed hands last night based on a story that gave the impression it had rails run on the RBA’s views.
Already this year, RBA watchers suspected that a journalist was backgrounded before the February rate cut. It moved markets in the Aussie dollar and interest rate and bond futures at the time.
Now it appears a similar thing has happened in the run-up to next Tuesday’s meeting with the release of an SMH article titled, “Reserve Bank to cut interest rates in May in face of weak economy.“
The similarities, especially the timing, between different stories by different journalists in rival papers is something highlighted by Business Insider colleague David Scutt on Twitter last night.
Soon after Peter Martin’s article appeared, the Aussie started to fall, even though the US dollar was losing ground. At one point last night the Aussie was down 1.5 cents at 0.7864. Elsewhere, interest rate futures have repriced the chances of a cut next week with the balance now shifting toward a solid bet rates will be cut.
Leaving aside the merits of the argument for a cut – which I have sympathy with even though I don’t think a cut is necessary – the reason ASIC needs to ask questions about the source of Martin’s view is that if any backgrounding has occurred, it threatens market integrity.
And if it turns out to be the case, then you just can’t run policy this way.
The market and traders have 2.30pm, Tuesday, May 5, in their diaries and RBA Governor Stevens opened his speech in Sydney this week by saying, “ahead of next week’s meeting of the Reserve Bank Board, I have no comments to offer today on monetary policy”, but then a journalist seems exceptionally confident about what the RBA is going to do next week.
Now maybe Martin will be left with egg on his face next week, but for now, that’s not the impression the market has of his views.
Traders would have been blindsided last night in the very same way, but to a lesser extent, as when the Swiss National Bank unexpectedly dropped the Swiss Franc peg to the Euro in early January.
Central banks are supposed to be dampeners of volatility not amplifiers.
Again, the point is not the merits of the argument. Even if it’s so, the Board may still disagree with management’s recommendation. The point is one of market integrity.
If the RBA is worried about moves in the Aussie dollar just prior to the Governor’s announcement in the past few months then surely they should be concerned about articles that knock 1.5 cents off the value of the Aussie.
It’s understandable that RBA insiders might be worried about a bigger shock to markets if they do cut next week, when market pricing had moved toward ruling it out and the Aussie was heading north of 80 cents with the US dollar fall.
But if the RBA has indulged in a little media whispering then that’s problematic because in an era with so many opportunities to talk about policy – including one the RBA governor passed on this week – this is not how you should run policy.