While traders operate in a world of instant information—where events from the other side of the globe are known in seconds—the actual unrolling of events is difficult to predict, as life is chaotic, and although history rhymes, it never repeats itself.
Thinking in probabilities is one of the most valuable habits a trader can develop, and this is what most markets do in the long run, trying to price in events. However, markets (and Central Banks) have never shied away from delivering surprises.
A central element in forex trading is the market pricing of interest rate decisions, as it fundamentally shapes expectations for a currency’s current and future demand. This is why economic data releases carry so much weight—they influence and constantly reshape those expectations.
Generally, weak or deteriorating data prompts markets to price in rate cuts, while strong data often delays cuts or even reintroduces the possibility of further rate hikes. Of course, these dynamics are always relative to the current policy rate, recent central bank decisions, and the broader global rate environment.
This is precisely why the has been reluctant to cut, despite analysts having attempted to price in cuts repeatedly over the past two years—something President Trump has often criticized. Cutting rates in a still-strong US economy would risk overheating demand and reigniting inflationary pressures.
A good example of this surprise factor came in yesterday’s from the Reserve Bank of Australia (RBA). While 31 out of 37 analysts expected a cut—and the market had priced in a 95% chance by Friday—the RBA opted to hold rates steady.
This is where the trader’s mindset comes in: How significant is that remaining 5% probability?
As history has shown, some central banks have a reputation for unexpected moves. And while many—particularly the Fed, with ZSJ’s Timiraos tweets—now go to great lengths to telegraph their decisions.
Meanwhile, others, such as the Bank of Canada and the RBA, remain more prone to surprises. For better understanding, more accurate preparation, and fewer surprises, it is essential to learn more about previous moves from Central Banks.
What Was the Last Surprise From the RBA?
As a reminder, the last surprise move by the RBA before this one was a continuation of the hike cycle in May 2023 – Markets had largely priced in the end of the Australian Hikes, and despite a lack of communication, the RBA took their rates from 3.60% to 3.85%.
This took up 2 full handles (+2.90%) in the following weeks.
Source: TradingView
AUD/USD Rises After the Surprise Pause
Source: TradingView
Cuts tend to depreciate a currency, and a lack thereof would thereby strengthen it. This was also the case for the throughout 2024 as cuts kept getting priced out.
AUD/USD showed a 500 pip candle at the 00:30 Policy Rate Decision release.
RBA Governor Bullock mentioned that “people got too excited at the mention of a 50bps cut” at the past meeting, especially while the Australian Economy is still performing quite well and the (close to 4.1%) is still very low.|
The AUD is still giving up some of its prior gains, though, and AUD/USD seems to be stuck in an 800 pip range between 0.6480 and 0.6560.
Safe Trades!