05 October 2017
FX Futures Trading at SGX Surges to US$ 59 Billion in September

FX Futures Trading at SGX Surges to US$ 59 Billion in September


Trading volumes of SGX FX futures broke multiple records in September as volatility returned to several emerging market currencies. SGX recorded the highest single day trading volume, highest weekly volume as well as highest monthly volume for FX futures, spurred on by the surge in trading of USD/CNH and INR/USD futures.


The average daily volumes crossed the US$ 2.8 billion mark with a 73% increase over the previous month. The total monthly volume for all FX contracts was 1,293,796 contracts, or US$ 59.3 billion, and crossed 1 million contracts for the first time since inception in 2013. This translated to a strong 131% jump over the last 12 months.



Source: SGX


SGX USD/CNH Futures volumes soar in September as CNH reverses direction against the dollar 


With tension in the Korean peninsula occupying center stage, the renminbi found itself occupying a new, unfamiliar place as a safe haven currency in early September. The result was a turbo-charged trading activity in the first half of the month that saw SGX set new benchmarks for renminbi futures. SGX recorded the highest single day volume on 4 September when the trading for the pair crossed US$ 1.5 billion [15,452 contracts] and then extended the record a few days later with US$ 2.6 billion [25,857 contracts] on 8 September.


The appreciation in the renminbi has helped the Chinese importers, while also fueling concerns on the country’s economic growth. The appreciation since start of the year till early September had nearly wiped off the 6.5 percent loss against the dollar seen in 2016. This sustained strength prompted the central bank into action, as it relaxed certain hedging and reserve related rules that were put into place when the currency was experiencing a rapid decline. The CNY mid-point was raised on 12 September after 11 successive days of being fixed lower than the previous day and signaled a change in the central bank’s approach to managing the currency levels. This triggered a sharp pullback, causing the renminbi to pare gains against the dollar.


The directional bias observed since the start of the year appeared to dissipate, as the CNY midpoint, slowly but surely, inched its way upwards for the rest of the month, finishing the month at 6.6369 on 29 September, above the 6.6010 level set on 31 August. This is the first time in the last six months that the currency has depreciated against the dollar on a month-on-month basis.


Against this backdrop, we saw a record streak of 12 consecutive days with traded volume for SGX USD/CNH Futures exceeding US$ 1 billion, taking the total number of ‘billion-dollar-days’ in September to 17 days. This surpassed the previous record for weekly volume by over 50% [82,351 contracts for week ending 8 September vs. 54,115 contracts for the week ending 11 August]. This pace of hitting new peaks has quickened in the last few months as trading activity for the SGX USD/CNH Futures has increased sharply in tandem with the changes in the underlying market expectations for the currency, measured by the PBOC midpoint.




Source: SGX/ Bloomberg   


The total volumes for USD/CNH futures crossed US$ 27 billion in the month signifying a 546% growth year-on-year, compared to US$ 4.3 billion in September 2016. The average daily volume for the pair stood at US$ 1.3 billion, up 62% month-on-month. The enhanced liquidity at SGX helps the market participants derive more confidence and has further consolidated SGX’s position as the leading exchange for the renminbi futures.






Source: SGX / Bloomberg


SGX INR/USD Futures volumes close in on 1 Million contracts in September as volatility returns 


Even as the utilisation of the Indian Fixed Income Foreign Portfolio Investment quotas remained well utilised (over 85% for government debt; over 90% for corporate debt), net inflows from foreign investors in Indian equities continued to decline in September, as global portfolio managers readjusted their allocations across emerging markets and cut exposure to Indian equities in the last two months. The re-allocation of portfolio flows coupled with a rebound in dollar softened the rupee.


Although both rupee and benchmark indices continued to trade in narrow ranges in early September, the scenario changed towards the latter half of the month, as  the rupee suffered reversals from recent peaks and the equity indices extended losses from previous month. Amidst talks of a fiscal stimulus surfacing mid-month, concerns grew over the government’s commitment to fiscal discipline and consequently, widening of fiscal deficit on account of unplanned expenses. These concerns infused a bit of volatility to the currency that had largely remained morose since May this year. The implied volatilities for USD/INR shifted upwards and a weakening bias was confirmed.


Trading in the SGX INR/USD Futures picked up in the second half of the month and with a record 108,417 contracts [US$ 3.3 billion] exchanging hands on 22 September, the SGX INR/USD Futures surpassed the previous record [64,316 contracts] set on 24 June 2016, when the global markets were reeling from Brexit. This pushed the overall FX Futures volumes on SGX close to US$ 5 billion on 22 September, marking a new record for single day trading volume and provided the fillip to push weekly volumes past US$ 15 billion.


However, the most active day for INR trading in the month was yet to come as trading amped up even further on 26 September. Trading volumes for SGX INR/USD Futures soared to a new record high with 124,297 contracts [US$ 3.8 billion] with the currency depreciating over 50 paisa on the day, one of the biggest single day moves in 2017. The rupee weakened 134 paisa or 2.09% in September (RBI fixing at 65.3552 on 29 September, against 64.0154 set on 31 August), making it one of the worst month-on-month move in a while.


The total monthly volume for the SGX INR/USD futures also hit a new high as a result of the frantic movements in the currency. With almost 1 million contracts traded in September [999,971 contracts or US$ 30.9 billion], this translated to a 96% increase year-on-year and a 65% increase month-on-month.




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