The Spot AUD/USD Foreign Exchange Market: Evidence from High Frequency Data

Using a high-frequency data set of the spot Australian dollar/US dollar this study examines the distribution of quotes, spreads and returns across the trading “day”. By identifying the direction of trade and the subsequent quote returns from contributing banks the segmented nature of the market into market-makers, and informed and uninformed traders is investigated. The results suggest that the information advantage held by informed traders is quickly eroded by the price discovery process of other institutions. Also the analysis is revealing of discontinuities in trading and the volatility of pricing across the trading “day”.