Forex - Aussie falls after RBA minutes, unusual FX trading discussed

Investing.com - The Australian dollar eased after the central bank released minutes of its April board meeting that showed caution on the next move, though noted scope to cut interest rates and also highlighted unusual FX trading patterns in February and March.

AUD/USD traded at 0.7700 down 0.30%, while USD/JPY changed hands at 119.46, up 0.22% and EUR/USD was quoted flat at 1.0731, down 0.07%.

The minutes showed that for the second consecutive month, the RBA considered cutting the cash rate before arriving at no-change, noting the effect of a cut remained hard to assess.

"In assessing the operation of the cash flow channel in particular, they noted the responsiveness of borrowers and savers to changes in interest rates and asset prices was unusually uncertain in a world of very low interest rates and high household leverage," the RBA said.

"Members also saw advantages in receiving more data, including on inflation, to assess whether or not the economy was on previously forecast path and allowing more time for the economy to respond to the reduction in the cash rate earlier in the year," the RBA said.

At the meeting, the RBA also discussed the unusual trading in the Australian dollar that occurred in the period immediately prior to the announcement of the board's decisions in both February and March.

"Members noted that the illiquid conditions that existed in the foreign exchange market at that time meant that small trades could move the price by relatively large amounts, and that once such movements occurred it would be highly likely that algorithmic trading strategies would exacerbate such movements, particularly given the illiquid environment. Moreover, the occurrence of these movements meant that liquidity was likely to decline further as more liquidity providers pulled back from the market during this window," the RBA said.

The RBA said it was advised by Australian Securities and Investments Commission that there was no evidence of procedural lapses or conduct that could have led to the early release of relevant information.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was quoted at 98.26, up 0.11%.

Overnight, the dollar held gains against a basket of other major currencies in subdued trade on Monday, as the greenback recovered from the previous week's disappointing U.S. data and as trading volumes were expected to remain light with no major U.S. data to be released.

Sentiment on the dollar remained vulnerable after a recent run of soft economic data saw investors push back expectations for higher U.S. interest rates.

Markets shrugged off data on Friday showing that U.S. consumer prices were higher for a second successive month in March.

The consumer price index edged up 0.2% last month, matching a similar gain in February. On a year-over-year basis, consumer prices dipped 0.1% in March after remaining flat in February.

Core consumer prices, which exclude food and energy costs increased 0.2% in March for an annual increase of 1.8%, the largest since October.

The single currency remained under pressure amid concerns that Athens is no closer to reaching an agreement on economic reforms for baiout funds with its creditors, fuelling fears that Greece could be forced out of the euro zone.