Beware of RBA intervention

Hi all,

Just in case some Australian dollar traders were not aware, the last time the AUD/USD plummeted like this was in Aug 2007. The Rerserve Bank of Australia acts in order to keep the financial markets orderly.

In Aug 07 when the AUD/USD fell from 0.88 down to 0.76 / 0.77 area the RBA intervened. I wouldn't be surprised if more of the same occurred again if this fall continues. There is plenty of info re this on the RBA website.

Just a quick reminder for those shorting.

Interesting article in the website. The last graph shows whether the bank was profitable after its intervention or not. The study seems to conclude that the bank was profitable on all occasions, so the intervention must be effective/successful. I think the RBA being profitable is a highly relative issue. Price does not stop when they start intervention. But still because the RBA has deep pockets, it continue to buy and buy as long as it is going down. Then they will hold the trade till they come back in profit, which may take years in some cases. An average trader cannot be considered profitable with this strategy. I am personally not convinced that the RBA or any central bank intervention can have trend changing effect.


http://www.rba.gov.au/marketoperatio..._role_fxm.html

Yes It could be a coincidence that the market turned around at about the same time that the RBA intervened in Aug 2007. The carry trade could have resumed at around the same time making the intervention look successful, when it perhaps did not have much effect. Also the overall trend in the market was up, they were merely acting in the direction of the trend.

In saying this, I would not be comfortable holding a AUD/USD short when the RBA decideds to throw it's weight in to the market.