An Analysis of the Australian Foreign Exchange Market Response to Monetary Policy Announcements and Explanatory Minute Releases

28 Pages Posted: 22 Aug 2012 Last revised: 12 Sep 2013

See all articles by Bronwyn McCredie

Bronwyn McCredie

Queensland University of Technology; Financial Research Network (FIRN)

Paul Docherty

Monash University

Stephen Andrew Easton

University of Newcastle

Katherine Uylangco

Queensland University of Technology - School of Economics and Finance

Date Written: August 20, 2012

Abstract

In US and European jurisdictions, monetary policy announcements that set a target interest rate for overnight loans are followed promptly by projections materials or statements that explain the deliberation process. In Australia however, these releases are made separately with the announcement of the monthly target interbank cash rate for overnight loans being provided two weeks before the release of the minutes of the Reserve Bank board meeting that explicate the rate outcome. This study exploits this unique feature of the Australian monetary policy environment in order to examine the differential impact of monetary policy announcements and explanatory minute releases on the Australian foreign exchange market.

Our results indicate that unexpected monetary policy announcements and explanatory minute releases have a significant impact on the Australian foreign exchange market. When this impact is differentiated, the informational content of an explanatory minutes release is shown to elicit a larger response. Further, conditioning on the state of the economy shows that returns following unexpected monetary policy announcements (explanatory minute releases) intensify (wane) during the Global Financial Crisis and are influenced by sentiment.

Keywords: Monetary policy, Foreign Exchange Market, Global Financial Crisis, Sentiment

JEL Classification: E52

Suggested Citation

McCredie, Bronwyn and Docherty, Paul and Easton, Stephen Andrew and Uylangco, Katherine, An Analysis of the Australian Foreign Exchange Market Response to Monetary Policy Announcements and Explanatory Minute Releases (August 20, 2012). 25th Australasian Finance and Banking Conference 2012. Available at SSRN: https://ssrn.com/abstract=2132412 or http://dx.doi.org/10.2139/ssrn.2132412

Bronwyn McCredie (Contact Author)

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Paul Docherty

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Stephen Andrew Easton

University of Newcastle ( email )

University Drive
Callaghan, nsw 2308
Australia

Katherine Uylangco

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

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