Foreign exchange and derivative turnover survey

NEWS RELEASE
Date: 2 September 2016

Foreign exchange and derivative turnover survey

New Zealand's foreign exchange market handled an average of US$10.6 billion per day in April 2016 according to a Reserve Bank survey released today. This is less than the April 2013 turnover figure of US$12.4 billion but greater than the April 2010 figure. The New Zealand dollar dropped one place to the eleventh most traded currency globally, with an average daily turnover of US$105 billion.

The results are part of a triennial survey co-ordinated by the Bank for International Settlements (BIS). Commenting on the survey, Head of Financial Markets Mark Perry said: "The decrease in foreign exchange turnover (which is measured in USD terms) was largely the result of the appreciation of the United States dollar. In New Zealand dollar terms, average daily turnover rose 5.6 percent. Total global foreign exchange turnover fell from US$5.3 trillion to US$5.1 trillion per day over the past three years, but rose slightly on an exchange rate adjusted basis.

“Central banks and other authorities in 52 jurisdictions participated in the 2016 survey, with data collected from more than 1200 banks and other dealers. In New Zealand, the survey captured the activity of the five major banks participating in the local wholesale financial markets.

"Foreign exchange spot turnover in New Zealand is dominated by trading-partner currencies such as NZD/USD, NZD/AUD, and USD/EUR. Together, this accounted for 65 percent of all local spot turnover in April 2016. Most foreign exchange trading occurs in major international financial centres and 93 percent of all New Zealand dollar turnover occurs offshore.

“In New Zealand, turnover in spot and FX derivatives markets fell, while FX swap turnover increased to 82 percent of total turnover. Turnover in interest rate derivatives is also reported, with average daily interest rate swap turnover in New Zealand increasing by US$3,396 million over the past three years to US$4,923 million. Overnight Indexed Swaps (OIS) has been the main cause for the increase in volume between 2013 and 2016. The OIS market has developed over the past three years with more liquidity now evident in the market.”

The BIS global report can be found on the BIS website: 2015 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Market Activity

Summary of results from foreign exchange turnover survey – April 2016

Total gross turnover
• Gross turnover in the New Zealand foreign exchange market reported by survey participants totalled US$212,957 million in the month of April 2016.
• Average daily turnover was US$10,648 million.

• Market analysis of total turnover:

• Currency analysis of total turnover:

Spot transactions
• Gross spot turnover totalled US$19,665 million or 9 percent of total turnover.
• Average daily turnover was US$983 million.

• Currency analysis of spot turnover:

• Analysis of spot turnover by counterparty:

Forward transactions
• Gross forward turnover reported by survey participants totalled US$10,632 million or 5 percent of total turnover.
• Average daily forward turnover was US$532 million.

• Analysis of forward turnover by currency:

• Analysis of forward turnover by counterparty:

Swap transactions
• Gross swap turnover reported by survey participants totalled US$174,507 million or 82 percent of total turnover.
• Average daily swap turnover was US$8,725 million.

• Analysis of swap turnover by currency:

• Analysis of swap turnover by counterparty:

Maturity analysis of forward and swap transactions

• Maturity analysis of forward and swap transactions by currency:

Synthetic transactions – foreign exchange
• Gross turnover in foreign currency derivatives totalled US$8,152 million.
• Average daily turnover was US$408 million.

• Analysis of foreign exchange turnover by type:

• Analysis of foreign exchange derivatives turnover by currency:

Synthetic transactions – single currency interest rate
• Gross turnover in single currency interest rate derivatives totalled US$102,831 million.
• Average daily turnover was US$5,142 million.
• Analysis of single currency interest rate derivatives turnover by type:

Instrument definitions

The definitions used for traditional foreign exchange market instruments and OTC derivatives market instruments were the following:

Spot transaction: single outright transaction involving the exchange of two currencies at a rate agreed on the date of the contract for value or delivery (cash settlement) within two business days.

Outright forward: transaction involving the exchange of two currencies at a rate agreed on the date of the contract for value or delivery (cash settlement) at some time in the future (more than two business days later). This category also includes forward foreign exchange agreement transactions (FXA), non-deliverable forwards and other forward contracts for differences.

Foreign exchange swap: transaction which involves the actual exchange of two currencies (principal amount only) on a specific date at a rate agreed at the time of the conclusion of the contract (the short leg), and a reverse exchange of the same two currencies at a date further in the future at a rate (generally different from the rate applied to the short leg) agreed at the time of the contract (the long leg).

Currency swap: contract which commits two counterparties to exchange streams of interest payments in different currencies for an agreed period of time and usually to exchange principal amounts in different currencies at a pre-agreed exchange rate at maturity.

Currency option: Option contract that gives the right to buy or sell a currency with another currency at a specified exchange rate during a specified period. This category also includes exotic foreign exchange options such as average rate options and barrier options.

Forward rate agreement (FRA): interest rate forward contract in which the rate to be paid or received on a specific obligation for a set period of time, beginning at some time in the future, is determined at contract initiation.

Interest rate swap: agreement to exchange periodic payments related to interest rates on a single currency; can be fixed for floating, or floating for floating based on different indices. This group includes those swaps whose notional principal is amortised according to a fixed schedule independent of interest rates.

Interest rate option: option contract that gives the right to pay or receive a specific interest rate on a predetermined principal for a set period of time.

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