Australia's financial regulator launched an investigation into "suspicious trading" around the Reserve Bank of Australia's (RBA) recent policy meetings, but a closer look at charts suggests that authorities are wasting their time.
The Australian Securities & Investments Commission (ASIC) began investigating "suspicious trading" in the AUD/USD following the RBA's policy meeting on March 3. The pair jumped one minute before the RBA surprised markets with its decision to keep interest rates on hold. The behavior was repeated on April 7 when the RBA surprised markets again with its decision to hold rates.
"ASIC confirms it will investigate a spike in the Australian dollar shortly before the Reserve Bank's monetary policy decision," it said in a statement in April. "ASIC is also investigating foreign exchange movements shortly before the RBA's announcements in February and March."
The financial regulator is investigating the possibility of inside trading, but a closer examination of the charts gives us a better idea of what happened.
The AUD/USD chart (on the left) looks like a clear case of informed trading given high volume and a large price move in the minute before the RBA's official policy decision. But there's a problem: the AUD/JPY chart (on the right) moves exactly the same way at the same time.
On the one-minute charts used here the RBA's decision was at 14:00. On every AUD pair one-minute chart the market moves dramatically at 13:59 – the minute before the RBA decision.
The Oanda five-second chart shows the move started at 13:59:50 on every AUD pair. By 14:00 all that was left was for the market to digest what had already happened and price activity moved sideways.
The exact replication of the fast up-move in all AUD pairs in the 10 seconds prior to the official RBA decision is not a sign of inside trading. It's more reasonably explained by the early loading of RBA information on their website before the data is officially released. What the charts show is global market reacting to information as it becomes available to all market participants.
The charts clearly show that the RBA's decision became available to many participants in the minute prior to the official release. These moves are captured across all pairs by High Frequency Quantitative Trading Algorithms perhaps running in the Dark Pools.
It appears the problem is in the way the RBA loads this data to its website in preparation for its official release. The duplication of behaviour across all AUD pairs shows this information is available to many, if not all, participants at the same time.
For inside trading to be present there would have to be a significant move prior to 14:00 andprior to the broad market move at 13:59. This did not happen.
The FX market is the deepest and most liquid market in the world. It would be a courageous – and foolish – inside trader who repeated this activity in February, March and again in April, knowing that the regulator was closely watching. The charts always tell the true story.