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Foreign Exchange

The Australian foreign exchange market is ranked 8th in the world by turnover and the Australian dollar is the 6th most actively traded currency.

In the year to June 2001, total turnover in Australia’s foreign exchange market was A$22.7 trillion – a 19% increase over the same period a year earlier. The bulk of the business was in FX swaps (A$14.5 trillion) and spot transactions (A$5.7 trillion). The most popular currency pairs traded in the Australian market are AUD/USD, USD/JPY and EUR/USD.

Most of the top global foreign exchange dealers run significant operations in Australia. In addition to the major Australian banks, international banks such as Citibank, JP Morgan Chase, Deutsche Bank, Royal Bank of Canada and Toronto-Dominion Bank also maintain a strong presence in the Australian market.

The Reserve Bank of Australia (RBA) is Australia’s central bank and is responsible for the smooth operation of the Australian foreign exchange. The powers of the RBA in regard to intervention are clearly set out in legislation. The RBA intervenes only to limit the exchange rate overshooting a level consistent with economic fundamentals, or to stabilize market conditions so as to ensure the integrity of the market is maintained.

Products

Market users have access to a wide range of liquid and sophisticated foreign exchange products. While spot foreign exchange transactions have traditionally been the backbone of the foreign exchange market, growth in turnover within the Australian market has come principally from swap and forward transactions.

The foreign exchange swap market is particularly deep with average daily turnover of around A$60 billion as at June 2002, rising from A$45 billion the previous year. The strong rise in forwards and foreign exchange swaps more than offset a decline in spot market trading – a trend which is consistent with foreign exchange markets globally. Swaps have assumed an increasing importance in the market as banks frequently use them for domestic liquidity management.

Market Conditions

Activity in the market is underpinned by the importance of trade to the Australian economy. There are other factors at work too. Australian-denominated assets are a small but important part of global investment portfolios. This generates a significant amount of activity in the local currency. In addition activity in currencies other than the Australian dollar is supported by the position Australia occupies in the Asian time zone.

While continuing to defy downward global trends, foreign exchange, remains by far the largest market in Australia.

A major structural change in the foreign exchange market has been the growing share of business done via electronic broking, a development that has come at the expense of direct dealing and voice broking.

With the capacity to capture both the close of the US trading day and the European markets, Australia is an ideal location from which to operate a foreign exchange trading book. Because of its strategic time zone locality, Australia is also well-placed as a processing centre for transactions done in the larger markets of Europe and North America.

Current exchange rate from HIFX

Click www.hifx.com.au/currency/converter.asp to use the HIFX currency converter.