Ever since RBZ lowered its rates last month, speculation was building in the marketplace about whether the RBA would or wouldn’t lower its interest rates as well?
A week coming up to Ferbruary 3rd saw numerous analysis put out by Bloomberg, Reuters and of course, the banks. Speculation that the RBA wouldn’t lower rates because it is concern about the high property prices and high cost of living.
Guess what?
At 11:30am, the RAB announced a 0.25% rate cut down to 2.25% from 2.50%. Surprise surprise!! Then again, I do not believe it was a surprise, however, none of us have a crystal ball, so he really can’t say for sure what the RBA was going to do.
However, my hunch was that it would cut rates because of mounting pressures. So I placed a stop if offered level at 0.7765 when the spot rate was 0.7805, about 10 minutes before the announcement. I also placed a stop if bid at 0.7835. In addition, since my inclination was rate cut I decided to gamble with buying a put option at 0.7765 for one day with a premium of 35bps, expiring on February 4th 10am NY time.
When the announcement came out, the AUDUSD fell off the side of the cliff falling over 100bps within 5 minutes.
My stop if offered order was activated at 0.7770 and I squared the spot trade at 0.7659 for a trading profit of 106 bps.
I also decided to buy back the option and locked in another 100bps trading profit.
Thank you RBA, I secured a 206bps trading profit within 10 minutes of the announcement.
What a great start to the month of February.
The Panthenon Investment Group 