The efficiency of the information processing in the Australian dollar market: Price discovery following scheduled and unscheduled news

We jointly investigate the responses of the Australian dollar (AUD) order flow, realized volatility and trading volume to unscheduled Reuters news headline alerts and scheduled macroeconomic news from Australia, Japan, the Eurozone, the U.K., and the U.S. over the period 2 January 2007 to 31 December 2009. We find that Reuters foreign exchange and fixed income market news headlines are important, and those headlines that arrive during the Australian offshore trading hours matter more. Furthermore, the AUD market responded mostly to Australian and U.S. macroeconomic news which have direct relevance for the exchange rate. We also find that better than expected Japanese and Eurozone macroeconomic news elicited a response in the AUD and also that better than expected news from Australia, U.S. and U.K. matter more. Finally, we find that the volume response to news decreases at a slower rate than the volatility response and that order flows for the AUD respond only to scheduled news.