AUD, RBA and Interest Rates

The RBA Overnight 1 month OIS Swap Rate at current 0.13 held everyday since June 15 except for 2 days, August 5 and 6. Since March, the 1 month Swap Rate ranged from 0.13 to 0.17. The change is meaningless to AUD movements.


The most vital 3 month Bank Bill Rate held 0.08 to 0.11 since April. And again the change is meaningless to AUD as not enough interest rate movements eists for AUD to trade other than tiny ranges to reflect interest rate moves.


The remainder of RBA Bank Bills and OIS Swap rates traded in the same no range capacity as the 1 and 3 month rates. Essentially, AUD interest rate markets went completely dead since March/April but all nation’s interest rate markets also went completely dead since March/April.

The only positive if any mention is RBA interest rates trade in a fairly correct lineup as all interest rates trade below headline at 0.25. AUD and the RBA is not unusual as all nation’s interest rates currently trade below headline and this set up includes the Fed.

The first rate below headline is the Effective interest rate and all remaining interest rate maturities trade around the effective rate. Here’s where is found day trades offered freely by all central banks.


Good example is GBP and the BOE. Current headline is 0.10 and the Effective rate termed Sonia is at 0.05 and currently 1/2 the distance to 0.10.


The last days BOE interest rates trades as follows: 0.0509, 0.0533, 0.0541, 0.0541, 0.0539, 0.0539, 0.0541 and 0.0538. This represents a sad day to market movements as no movement to interest rates translates to no movements to currency prices.

The central banks not only flattened daily ranges but current markets are trading at the lowest daily movements since EUR introduction in 1999.

5 Day Rule


The 3 month rate and RBA maturities must change by at least 5 basis points within 5 days then markets are alerted to an impending rate change. RBA rates fails in this regard as no movements exist. Only rare days does the RBA and central banks surprise with a rate change.
The RBA currently stands on hold and to follow the FED, may stand on hold for years to come. A lower headline from 0.25 threatens effective and interest rate maturities to trade to zero and easily to negative as was seen by the RBNZ rates last week.


AUD/USD


The positive to AUD/USD this week is ranges are trading wide. This means no matter the RBA decision and any statements, AUD has potential to move far and wide.


AUD/USD Weekly Trade


Short 0.7227 and 0.7237 to target 0.7080.
Short below 0.7054 to target 0.6924.


Long 0.6924 to target 0.7011
long 0.7080 to target 0.7162.


Current AUD moving averages are rising and this means any price trading above 0.7237 is an extra bonus for more AUD short profits.

Brian Twomey

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