The impact of monetary surprises on Australian financial futures markets: an insight into cash rate target announcements

Xinsheng Lu, Ling Qu, Ying Zhou

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1 Citation (Scopus)


This paper investigates the impact of unanticipated Australian monetary policy changes on AUD/USD exchange rate futures, and 3-year and 10-year Australian Treasury bond futures, during the period from January 1997 to April 2010. Our study contributes to the literature by using both the 30-day and the 90-day bank accepted bill (BAB) rates to disentangle the unexpected surprise component of monetary policy changes from overall cash rate target changes in the Australian money market, and by concurrently modelling the effects of monetary surprises and other key macroeconomic announcements in Australia. The empirical results suggest that the 30-day BAB rate is the best proxy for the expected monetary policy actions. We find that the effect of monetary surprises on the volatility of the 3- and 10-year bond future instruments is significant and persistent. We have also documented a strong monetary policy effect on the mean returns of the exchange rate futures, indicating that unexpected monetary policy adjustments have a significant impact on the level of the exchange rate movements rather than on the volatility of the FX futures market.

Original languageEnglish
Pages (from-to)151-166
Number of pages16
JournalAustralian Economic Papers
Issue number3
Publication statusPublished - Sep 2015
Externally publishedYes

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