Do macro-economic news announcements affect the volatility of foreign exchange rates? Some evidence from Australia

This paper investigates the role of Australian macro-economic announcement news on ® ve major Australian dollar (AUD) exchange rates. Speci® cally, the daily changes of the exchange rates are modelled to ascertain the existence and the nature of the news e€ ects in the conditional mean and variance of the changes. It is found that a higher than expected current account de® cit and unemployment rate announcements depreciated the AUD, and an unexpectedly higher GDP growth announcement appreciated it. Current account de® cit, CPI and unemployment news announcements signi® cantly raised the conditional volatility of the changes of the AUD on the days of their announcements, except for the BP/AUD for the CPI news, and there is some evidence of retail sales news reducing it. In general, the evidence is consistent with a view that a release of new information creates uncertainty in the markets due to a lack of consensus on the e€ ects of the particular news announcement and the necessary course of action. In addition, the EGARCH(1,1)-in-Mean modelling of the daily changes of the exchange rates is found to be very successful in addressing the observed statistical properties of the daily changes: leptokurtosis, time-varying heteroscedasticity and asymmetric response of the conditional volatility to unexpected changes.