Media Release Survey of Foreign Exchange and Derivatives Markets

Background

In April 2007, the Reserve Bank conducted a survey of activity in foreign exchange and over-the-counter (OTC) derivatives markets in Australia. This was part of a global survey of 54 countries, co-ordinated by the Bank for International Settlements (BIS). Similar surveys have been conducted every three years since 1989.

Activity in Australia's foreign exchange and derivatives markets has continued to increase rapidly since the previous survey in 2004. Total turnover has more than doubled, and has increased across all instruments, counterparties and currencies. In terms of global turnover, the Australian foreign exchange market is the seventh largest in the world and the AUD/USD is the fourth most traded currency pair. These rankings are unchanged from the previous survey.

The preliminary results of the global survey and links to other participating nations' results are available from the BIS website at www.bis.org/press/p070925.htm. Results for the Australian market are summarised below and in the attached tables.

1. Foreign Exchange (Tables 1, 2 and 3)

Turnover in the foreign exchange market covers all transactions in spot, outright foreign exchange forwards and foreign exchange swaps[1].

  • In April 2007, foreign exchange turnover averaged US$170 billion per day, compared with US$81 billion per day in April 2004. This is an increase of 110 per cent at current exchange rates and 90 per cent at constant exchange rates.
  • Transactions in the spot market grew by 74 per cent between 2004 and 2007. Activity in the outright forwards market increased by 190 per cent and in the foreign exchange swaps market by 120 per cent. Foreign exchange swaps continue to represent the highest share of foreign exchange turnover, comprising 65 per cent of the Australian market.
  • The AUD/USD is the most traded currency pair in the Australian market, accounting for 45 per cent of total foreign exchange turnover, a similar proportion as at the time of the previous survey. EUR/USD is the second most traded pair in the Australian market, at 14 per cent of total turnover. Transactions in NZD/USD, USD/CHF and the “Other” currency category (which predominantly involve Asian currencies) increased noticeably as a proportion of total turnover, while the share of transactions in EUR/USD and USD/JPY declined.
  • Transactions between local financial institutions increased by 387 per cent, and now account for around 30 per cent of all turnover. Transactions with overseas financial institutions, which account for over 60 per cent of turnover, rose by 69 per cent. Transactions with non-financial institutions rose by 93 per cent.

2. OTC Currency and Interest Rate Derivatives (Tables 4 and 5)

Turnover in derivatives covers all transactions in OTC options and cross-currency interest rate swaps.

  • In April 2007, total derivatives turnover in Australia averaged US$30 billion per day, compared with US$18 billion in 2004. This is an increase of 68 per cent at current exchange rates and 52 per cent at constant exchange rates.
  • Transactions in interest rate derivatives, which account for the bulk of total derivatives turnover, grew by 77 per cent between 2004 and 2007. Within this category, turnover in interest rate swaps grew by 166 per cent while turnover in forward rate agreements fell by 36 per cent.
  • Transactions in foreign exchange derivatives grew by 39 per cent between 2004 and 2007. Within this category, transactions with both currency swaps and options contributed to the increase.
  • Derivative transactions with overseas financial institutions increased by 83 per cent to US$20 billion per day, and account for around 70 per cent of all derivatives turnover. Transactions with non-financial institutions increased by 87 per cent to US$4 billion per day, while transactions with local financial institutions increased by just 9 per cent.

Footnote

Note that only one leg of a swap contract is recorded to avoid double counting the transaction. [1]

Table 1: Australian Foreign Exchange Market Activity(a)(b)
Daily average turnover, US$ billion
By type of transaction April 1995 April 1998 April 2001 April 2004 April 2007
Spot
against AUD 5.6 8.3 6.5 11.4 16.4
against other currencies 12.1 11.2 6.7 14.2 27.9
Total 17.6 19.6 13.2 25.5 44.3
Forwards
against AUD 0.8 1.5 2.3 3.1 6.2
against other currencies 0.5 1.0 1.2 1.9 8.2
Total 1.3 2.5 3.5 5.0 14.5
FX Swaps
against AUD 10.0 13.8 18.1 24.9 61.9
against other currencies 10.6 10.7 17.2 25.3 48.8
Total 20.6 24.5 35.3 50.3 110.7
Total
against AUD 16.4 23.6 26.9 39.4 84.6
against other currencies 23.2 22.9 25.1 41.4 84.9
Total 39.5 46.6 51.9 80.8 169.5
(a) Adjusted for local inter-dealer double counting.
(b) Totals may not sum due to rounding.
Table 2: Foreign Exchange Turnover in Australia by Currency Pair(a)
Per cent of total turnover
Currency Pair April 1995 April 1998 April 2001 April 2004 April 2007
AUD/USD 42.0 48.2 49.4 44.7 45.2
AUD/EUR 0.5 1.0 1.3
AUD/JPY 0.8 1.0 1.0
EUR/USD 11.4 17.0 13.8
USD/DEM 21.7 13.5
USD/JPY 13.3 16.0 14.0 12.7 8.0
GBP/USD 7.0 5.4 6.4 6.2 5.8
NZD/USD 3.2 6.7 9.0 6.0 9.1
USD/CAD 0.8 0.7 2.7 3.2 2.0
USD/CHF 2.6 0.9 1.2 1.3 3.7
EUR/JPY 0.6 1.1 1.0
Other 9.4 8.6 4.0 5.8 9.1
(a) From April 1998 adjusted for local inter-dealer double counting. April 1995 data based on gross turnover.
Table 3: Turnover by Counterparty(a)(b)
Daily average in US$ billion
By type of transaction April 1995 April 1998 April 2001 April 2004 April 2007
Spot
Financial institutions – local 3.6 6.5 3.2 2.1 6.6
Financial institutions – overseas 9.8 10.2 8.0 19.7 32.0
Non-financial institutions 4.2 2.9 2.0 3.7 5.8
Total 17.6 19.6 13.2 25.5 44.3
Outright Forwards
Financial institutions – local 0.1 0.8 0.7 0.4 3.1
Financial institutions – overseas 0.4 0.9 1.6 2.8 9.4
Non-financial institutions 0.7 0.8 1.1 1.8 1.9
Total 1.3 2.5 3.5 5.0 14.5
FX Swaps
Financial institutions – local 4.3 8.4 8.7 7.3 38.0
Financial institutions – overseas 12.4 13.6 24.1 39.6 63.4
Non-financial institutions 4.0 2.6 2.4 3.3 9.3
Total 20.6 24.5 35.3 50.3 110.7
Total
Financial institutions – local 8.0 15.7 12.6 9.8 47.7
Financial institutions – overseas 22.6 24.7 33.7 62.1 104.8
Non-financial institutions 8.9 6.3 5.6 8.8 17.0
Total 39.5 46.6 51.9 80.8 169.5
(a) Adjusted for local inter-dealer double counting.
(b) Totals may not sum due to rounding.
Note: Financial institutions includes those reporting in the BIS survey as well as non-reporting financial institutions.
Table 4: Australian OTC Derivatives Activity(a)(b)
Daily average turnover, US$ billion
By type of transaction April 1995 April 1998 April 2001 April 2004 April 2007
Foreign Exchange Derivatives
Currency swaps 0.3 0.4 0.5 1.2 2.1
Options 0.8 1.3 1.6 3.6 4.7
Total 1.0 1.7 2.1 4.9 6.8
Interest Rate Derivatives
Forward rate agreements 2.0 1.5 5.5 5.6 3.6
Swaps 0.5 1.3 4.0 6.7 17.8
Options 0.3 0.1 0.3 0.5 1.3
Total 2.8 2.8 9.8 12.8 22.7
Total OTC Derivatives 3.8 4.6 12.0 17.6 29.5
(a) Adjusted for local inter-dealer double counting.
(b) Totals may not sum due to rounding.
Table 5: OTC Derivatives Turnover by Counterparty (a)(b)
Daily average turnover, US$ billion
  April 1995 April 1998 April 2001 April 2004 April 2007
1. Foreign Exchange Derivatives
Currency Swaps
Financial institutions – local 0.1 0.1 0.2 0.4 0.4
Financial institutions – overseas 0.1 0.1 0.3 0.8 1.5
Non-financial institutions * 0.2 0.1 0.1 0.2
Total 0.3 0.4 0.5 1.2 2.1
Options
Financial institutions – local 0.1 0.3 0.3 0.3 0.7
Financial institutions – overseas 0.4 0.7 1.0 2.5 3.1
Non-financial institutions 0.2 0.2 0.4 0.8 0.5
Total 0.8 1.3 1.6 3.6 4.7
 
2. Interest Rate Derivatives
Forward Rate Agreements
Financial institutions – local 1.4 1.1 2.9 2.4 1.4
Financial institutions – overseas 0.3 0.3 1.8 3.1 1.9
Non-financial institutions 0.3 0.1 0.8 0.2 0.4
Total 2.0 1.5 5.5 5.6 3.6
Swaps
Financial institutions – local 0.2 0.6 1.5 1.8 2.9
Financial institutions – overseas 0.3 0.5 2.2 4.2 13.6
Non-financial institutions * 0.2 0.3 0.8 1.3
Total 0.5 1.3 4.0 6.7 17.8
Options
Financial institutions – local * * 0.1 0.1 0.1
Financial institutions – overseas * * 0.1 0.4 0.1
Non-financial institutions 0.1 * * * 1.2
Total 0.3 0.1 0.3 0.5 1.3
Total OTC Derivatives
Financial institutions – local 1.8 2.1 5.0 5.0 5.5
Financial institutions – overseas 1.1 1.6 5.4 11.0 20.2
Non-financial institutions 0.6 0.7 1.6 1.9 3.5
Total 3.8 4.6 12.0 17.6 29.5
(a) Adjusted for local inter-dealer double counting.
(b) Totals may not sum due to rounding.

Notes:
Financial institutions includes those reporting in the BIS survey as well as non-reporting financial institutions.
* Indicates less than US$50 million.

Enquiries

Mr Keith Hall
Head of International Department
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 8400

Dr Michael Plumb
Senior Manager, Market Analysis
International Department
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 8450