FX as an asset class is continuing to maintain its place as a leading capital markets product. The most recent BIS (2010) survey showed positive signs amid the credit crisis and today central banks of Japan and Australia have announced significant growth in FX volumes.
Daily trading volumes in both the Australian and Tokyo foreign exchange markets have grown in U.S. dollar terms, according to data released Monday.
But while some of the growth was likely due to dealers looking to take advantage of increased volatility, the figures were also inflated by the surge in both the Australian dollar and the Japanese yen against the greenback in the periods being considered. The currencies’ appreciation inflates the figures, which were as of April and expressed in the U.S. dollar.
Traders say volumes could have dipped since then, as investors get increasingly nervous over Europe’s festering debt crisis and uncertainty over whether bickering U.S. politicians will agree to raise the debt ceiling in time to head off a default.
In Sydney, total average daily trading volume in all over-the-counter foreign exchange instruments in the Australian market was US$219.1 billion in April 2011, up 12% from October and 14% higher from a year earlier. In those periods, the Australian dollar had risen against the greenback around 10% and 17%, respectively. During April, the Australian dollar traded at a post-float record of US$1.1013.
By currency pair, the Australian dollar against the U.S. dollar grew its market share to 49% from 46% in October, according to the semi-annual report on foreign exchange trading volume, which draws on data supplied by 26 financial institutions and the central bank’s monthly trading volume survey.
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The average daily trading volume of foreign exchange trading in the Tokyo market in April increased 8.0% from a year earlier to US$284.6 billion, based on data from 20 institutions, the Tokyo Foreign Exchange Market Committee said.
Spot currency trading volume rose 10.0%, while foreign currency swap trading volume climbed 7.6%, said the committee of Tokyo market participants, which includes the Bank of Japan.
Forward trading volume gained 7.9% from a year earlier, while currency options trading decreased 12.0%. Daily average volume of interbank foreign exchange trading in April was 13.0% larger than the same month a year earlier.
The volume of trading with customers fell 6.2%, however, partly as Japanese exporters grew less active in the foreign exchange forward and currency options markets than a year earlier due to the impact of the March 11 earthquake and tsunami, the data showed.
Australia’s economy has been strong to weather the financial crisis, it was one of the first major economies to increase interest rates, unemployment has been modest and overall economic growth is steady. With the AUD reaching as low as $0.60 against the greenback the economy has done well to get back on its feet. With commodity prices still in track the AUD will continue to show strength.
Japan on the other hand is still trying to find its way since the Asian crisis in 1997, interests rates have been at record lows, the yen has been immensely volatile affecting the key export markets including automobiles and electronics.