The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Tuesday, June 5, 2012

From 10am financial markets bet RBA would not go 50bps (charts)

The price action in the currency and bond markets today was fascinating, with many traders describing it as bizarre. In fact, the currency appreciation/bond price falls were so strong it looked like someone was betting on the RBA holding rates steady--an outcome assigned a 0% probability by the markets. In truth, they appear to have known that the RBA would not cut rates by 50 basis points, which was an event previously given a high 60% plus probability by the markets. As the two charts below show, this price action really gathered pace once the RBA's board meeting commenced at 9am this morning. You can see this in the rally in the Aussie dollar from a low of ~97.15 US cents to ~97.77 US cents just before the 2.30pm decision (first chart). The Aussie dollar rose further after the RBA decision to cut by only 25, peaking at ~97.90 cents. Significantly, the same dynamic held for 3 year Aussie government bond futures prices, which fell from ~97.98 to about 97.85 before the decision (second chart), and have fallen further to ~97.80 since. The thing to focus on is the direction of both the Aussie dollar and bond prices after the RBA announcement at 2.30pm compared to when the price action started at around 10am.




at 3:53 PM