Dollar bloc upsurge boosts Australian forex turnover

The Aussie, along with the New Zealand and Canadian dollars, has become a popular currency in recent months, as Australia offers relatively high yields compared with G3 currencies.

"Data suggests a significant rise in turnover has occurred in line with renewed investor interest in the AUD and NZD," said Karen Pringle, senior currency strategist at ANZ Investment Bank in London.

That data includes a report from the Australian Financial Markets Association, showing that total FX market turnover increased by 20% during 2002, while the Reserve Bank of Australia’s monthly FX data shows a 40% rise in FX options trading growth over the past two years. Those statistics quantify traders’ reports of booming Aussie options business earlier this year (FX Week, February 3).

This increase in volumes is having a positive knock-on effect for Australian banks -- even if the trades do not originate from Australian clients. "Most AUD or NZD transactions will end up being cleared with an Australasian FX bank," said ANZ’s Pringle. "That suggests that if global AUD flows are rising they should be reflected in Australian banks’ turnover. While turnover with domestic customers and FX dealers within Australia is actually lower year-on-year, turnover conducted with overseas banks is well up -- by 67% for spot deals."

The reputation of Sydney and other Australasian trading centres is getting a boost from this trend, but other factors are also working in its favour. "Technology is affording business managers the opportunity to be a little more relaxed about the location of their FX teams," said Ross Beaney, global head of FX at Commonwealth Bank of Australia (CBA) in Sydney. "If you can deploy the right systems, the physical location of trading and risk management staff starts to decline in importance. Over time this is encouraging some process of decentralisation away from G3 centres."

Sydney’s geographic position affords it a unique time-zone advantage. It encompasses the entire Asian trading day and also captures flows from market open in Wellington, New Zealand and London.

Meanwhile, a deep pool of talent, tax advantages, Australia’s AAA sovereign debt rating, highly liquid forwards markets and the competitiveness of the Aussie dollar are all contriving to boost Sydney’s status in global FX.

"A heightened interest in the Aussie and New Zealand dollar is always going to assist in the attraction of centres such as Sydney as a site for treasury businesses generally," said CBA’s Beaney.

Global banks such as Royal Bank of Canada, ABN Amro and TD Securities have chosen to site Asia-Pacific headquarters in Sydney, having re-located from other Asian centres in the past three years.