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Australia’s FX Market Catching up with Singapore

Singapore’s lead as Asia’s (excluding Japan) largest FX market has significantly narrowed with recent data showing Australia’s FX market is rapidly catching up.

Australia’s average daily FX volumes jumped by more than 50% to reach AUD211.3 billion in April 2006 compared to April 2005, according to latest data from the Reserve Bank of Australia (RBA), the country’s central bank.

In comparison, the Singapore Foreign Exchange Committee’s survey covering April 2006 FX trading shows the country recording average daily FX volumes of $195.1 billion.

Official BIS surveys in April 2004 revealed that Australia and Singapore had volumes of $81 billion and $125 billion respectively, indicating a 102% and 56% jump over the past two years.

Presenting at an Insto conference last week, Guy Debelle, head of the international department at RBA, said “One of the factors contributing to the increased activity in recent years has been the carry trade as well as the development of currencies as an asset class as part of the search for yield.”

Australia’s high cash interest rate of 6.25% has been particularly sought by Japanese retail investors accustomed to near zero returns. This carry trade has resulted in an increase in Australian dollar ‘uridashi’ bonds that are marketed directly to Japanese retail investors.

Debelle also noted that “ironically, despite the rapid growth in turnover in the Australian foreign exchange market, the exchange rate itself has been remarkably stable. This is not a phenomenon unique to the Australian market; the G3 currencies have also exhibited a relatively low degree of volatility”.

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