Dollar trades add to fears of rate call leak

A suspicious surge in the dollar has prompted the market watchdog to step up an investigation into the nation’s forex market.

A businessman passes by the Reserve Bank of Australia (RBA) building in Sydney, 02/11/2010.

Another suspicious surge in the dollar just seconds before the Reserve Bank issued its latest interest rate announcement has prompted the market watchdog to step up an investigation into the nation’s foreign exchange trading market.

While the RBA’s surprise decision to keep official cash rates on hold at 2.25 per cent sent currency markets into a spin, the regulator narrowed in on a series of trades that correctly predicted that the dollar would soar as the central bank opted to hold rates steady.

Many investors and traders had expected the RBA to cut its benchmark interest rate. Falling cash rates tend to make a currency relatively less attractive to investors.

GRAPHIC: RBA Statement explained

The latest move in the dollar followed similarly curious movements just before the past two interest rate announcements from the central bank. Those earlier movements prompted the Australian Securities & Investments Commission to launch a review last month amid suggestions of a data leak from the central bank.

Foreign currency dealers yesterday said the trades behind a near US1c jump in the dollar about 10 seconds before the Reserve Bank’s scheduled 2.30pm announcement of its interest rate decision were linked to a major Australian bank.

A spokesman for the bank, which The Australian has chosen not to name, said it “does not comment on rumour or speculation”.

ASIC spokesman Andre Khoury said: “That was another movement, so yes, we will be looking at the movement of the Aussie dollar prior to the RBA’s announcement.

“ASIC is also investigating ­foreign exchange movements shortly before the RBA’s announcements in February and March 2015,” he added, but declined to comment further.

Traders said the latest move was not quite so obvious as the previous occasions, but they noted that the dollar jumped as much as 0.7 per cent before the RBA announcement.

“(The dollar) rallied very strongly six seconds before the announcement,” IG Markets chief market strategist Chris Weston said. While so-called “high-frequency trading” through the use of sophisticated computer algorithms may have contributed to the volatility surrounding the RBA’s interest rate decision, some traders said the surge was more likely caused by a lack of liquidity.

Joe Hockey last month said he had contacted RBA governor Glenn Stevens following suggestions of “extraordinary trades” a minute before the 2.30pm announcement that saw the dollar rise by more than 0.6 per cent.

On February 3, the dollar dropped 0.6 per cent to US77.49c in the 10 seconds before the RBA’s decision to cut rates was released.

A spokesman for the Treasurer declined to comment yesterday. A RBA spokesman also declined to comment.