AUDUSD went down???? | Forex Factory

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AUDUSD went down????

  • #1
  • First Post: Mar 4, 2008 9:41pm Mar 4, 2008 9:41pm
Aussie Interest rate went up to 7.25% from 7.0%. Yet after the news realease, AUD /USD went down.

It doesn't make sense to me (probably because I am still relatively new to the fundamentals)

Can anyone explain how/why did happen? An Interest rate increase should lead to more buy of that currency as it is now paying higher interest.
  • #2
  • Mar 4, 2008 9:46pm Mar 4, 2008 9:46pm
Quoting Svm
Aussie Interest rate went up to 7.25% from 7.0%. Yet after the news realease, AUD /USD went down. .
In a nutshell, it was priced in. Classic buy the rumor, sell the news.

Also, dovish comments from the RBA didn't help at all. That was the biggest kicker.
  • #3
  • Mar 4, 2008 9:48pm Mar 4, 2008 9:48pm
The interest rate increase was already priced in
  • #4
  • Mar 4, 2008 9:50pm Mar 4, 2008 9:50pm
Picture of impact of news release on morning of 04/03/2008 (Aussie time)
AUD interest rate went up from 7.0% to 7.25%
Attached Image (click to enlarge)
Click to Enlarge Name: audusd-1.JPG Size: 163 KB
  • #5
  • Mar 4, 2008 9:54pm Mar 4, 2008 9:54pm
Quoting Trader KGB
In a nutshell, it was priced in. Classic buy the rumor, sell the news.

Also, dovish comments from the RBA didn't help at all. That was the biggest kicker.
Well, then why did USD/CAD go up when CAD decreased its interest rates or few weeks back, EURUSD went up when USD decreased its interest rates by 0.25%?

Wasn't it priced in already at that time?
  • #6
  • Mar 4, 2008 10:09pm Mar 4, 2008 10:09pm
Quoting Svm
Well, then why did USD/CAD go up when CAD decreased its interest rates or few weeks back, EURUSD went up when USD decreased its interest rates by 0.25%?

Wasn't it priced in already at that time?
CAD cut was twice as much as expected.

EURUSD went up when dovish Fed comments hinted at further interest rate cuts in the future.
  • #7
  • Mar 4, 2008 10:11pm Mar 4, 2008 10:11pm
  •  TrevA
  • | Joined Oct 2007 | Status: my brain has a mind of its own | 166 Posts
Ok, here's why prices go crazy during news announcements and a theory on why the Aussie went down after positive news.

Most traders pull back and wait for major news announcements to pass and this causes a significant liquidity reduction (less traders).

Reduced liquidity causes higher volatility and choppy price patterns because the few buyers trading the news have the ability to significantly move the market with smaller orders. As liquidity increases (more people return to trade) in the hours after a news announcement, the volatile price swings subside and the choppy price patterns disappear.

Take your example of the Aussie interest rate announcement... here's one theory:

1. Fewer traders during the news announcement caused an reduction in liquidity;
2. A random sell order caused the price to significantly drop;
3. The drop in price triggered stop losses causing a cascading sell of stop loss orders;
4. The cascading sell drives prices even lower and the downward momentum draws traders into the market shorting the aussie driving it down ever further.
5. Eventually there are no more sellers, all stops have been hit and the buyers come back into the market pushing the price back up.
6. As the price comes back up, sellers who shorted near the bottom get nervous and begin to cover their shorts driving the price up.

For now, I think the Aussie is cheap and will retest its recent highs.

TrevA
  • #8
  • Mar 5, 2008 12:17am Mar 5, 2008 12:17am
Thanks TrevA for the write-up!

I was equally befuddled by the contrarian market response.

And worried too cos was caught with several trades expecting the bulls to come back charging in a short time.

All trades in the green today except for one more.

I'm only in my 2nd day of live trade!
pips r jumpin n the euro is high..
  • #9
  • Mar 5, 2008 12:53am Mar 5, 2008 12:53am
The AUD will only gain if USD continues to weakens and scores new highs versus Euro, Pound. Meantime, stock markets will decide the fate of high yielders.

So unless USD is hit with really bad news, aud should not come back given a calm environment with no more rumours about writedowns.
  • #10
  • Mar 5, 2008 4:09am Mar 5, 2008 4:09am
  •  TrevA
  • | Joined Oct 2007 | Status: my brain has a mind of its own | 166 Posts
Quoting CounterTrend
The AUD will only gain if USD continues to weakens and scores new highs versus Euro, Pound. Meantime, stock markets will decide the fate of high yielders.

So unless USD is hit with really bad news, aud should not come back given a calm environment with no more rumours about writedowns.
CounterTrend.... I agree with you about the relative values between AUD and USD in part but that's only part of the picture.... and here's the big but... interest rates put a long bias on the currency causing more people to buy the Aussie. This increases demand and pushes the price up.

Also, another rate hike is 'rumored' so we may see the Aussie increase again.... but, who's to really know? All will be revealed in the fullness of time.

TrevA
  • #11
  • Mar 5, 2008 4:11am Mar 5, 2008 4:11am
  •  TrevA
  • | Joined Oct 2007 | Status: my brain has a mind of its own | 166 Posts
Quoting summertime
Thanks TrevA for the write-up!

I was equally befuddled by the contrarian market response.

And worried too cos was caught with several trades expecting the bulls to come back charging in a short time.

All trades in the green today except for one more.

I'm only in my 2nd day of live trade!
Thanks for the compliment and good luck with your live trading. BTW, what money management system do you use?

TrevA
  • #12
  • Mar 5, 2008 5:33am Mar 5, 2008 5:33am
Quoting Svm
Aussie Interest rate went up to 7.25% from 7.0%. Yet after the news realease, AUD /USD went down.

It doesn't make sense to me (probably because I am still relatively new to the fundamentals)

Can anyone explain how/why did happen? An Interest rate increase should lead to more buy of that currency as it is now paying higher interest.
Im Not a fundamental trader...Im a technical+day trader... I,d Like to show you a technical reason that why this pair drop's down... See the both screenshot's
1st is of 4-Hour's clean Breakage
2nd Is of Daily chart's clean Breakage...
Detail is mentioned in it... I was sure about this pair to drop for more than +100 Pip's even for almost +200 Pips... Im posting my technical view's on this pair in this thread on daily basis...
http://www.forexfactory.com/showthre...01#post1885201
As it's one of my favourate pair's...
Attached Image(s) (click to enlarge)
Click to Enlarge Name: )1-4hours.GIF Size: 49 KB
Click to Enlarge Name: 02--Daily.GIF Size: 51 KB
  • #13
  • Mar 5, 2008 6:48am Mar 5, 2008 6:48am
Two things: it needed a breather and commodities drop, ie. gold and oil.

Just went long myself.
  • #14
  • Last Post: Edited 10:09am Mar 5, 2008 9:46am | Edited 10:09am
My MM method is simple.

As I'm still learning the ropes I'm trading small.

I've got AUD1000 in my main a/c and about AUD280 in a sub-a/c.

I only trade from the sub-a/c. One lot is a mere 500units.

But lots of hit-n-run trades.

This is just like demo a/c for me but with REAL money albeit miniscule amounts!
pips r jumpin n the euro is high..
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