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Traders overall have been lamenting the low volatility, low volume environment seen in 2014, but FX traders in New York have been especially downbeat, with good cause.
Semi-annual central bank FX volume data, released earlier this week from the the Foreign Exchange Committees in North America, UK, Canada, Australia, Singapore and Japan, confirmed that daily FX volumes were lower in April 2014, compared to a year earlier, with few exceptions.
“The data from these committees is the most comprehensive source for FX volumes,” said Greg Anderson, global head of FX strategy at BMO Capital Markets, noting that the data is similar to the BIS Triennial Survey of FX Turnover, last conducted in 2013.
The one downside to the data is that at only April and October are sampled, “so unusual features in those months such as holidays and volatility surges can distort the trends in volume,” he said.
Nevertheless, “the conclusions drawn from April are probably representative of the whole year,” Anderson said.
The New York Fed Foreign Exchange Committee of North America noted that average daily volume in total over-the-counter (OTC) foreign exchange instruments, such as spot, outright forward, foreign exchange swaps and options was $811 billion in April 2014.
“The April total was 0.6% lower than average daily volume during the October 2013 survey period, and 20% lower than a year earlier,” the NYFXC said.
Average daily volume in spot fell by 9% since the last survey (October 2013), but this was partially offset by growth in forwards and OTC options, which rose 14% and 24% respectively, the report said.
“The decline in volume since the last survey was driven by reporting dealers and other dealers, while turnover across other financial customers and nonfinancial customers increased,” the NYFXC said.
Of the $811 billion in average daily FX volume, EURUSD represented $201.2 billion or 25%, USDJPY was $131.6 billion or 16%, GBPUSD $81.3 billion or 10%, CADUSD $65 billion or 8%, USDBRL $19.8 billion or 2%, Other USD pairs $206.5 billion or 26%, other Euro pairs $38.4 billion or 5% and All Other Currencies $67.3 billion or 8% the report said.
In terms of other centers, the UK saw average daily turnover of $2.402 trillion in April 2014, up 7% in October 2013, but 6% below the record survey high seen in April 2013, according to the UK Foreign Exchange Joint Standing Committee.
The volume rise seen in April 2013 was driven by a “substantial increase in USD/JPY activity,” where turnover “more than doubled to $503 billion per day,” the UK FXJSC at the time said.
In Canada, monthly turnover for traditional FX products in April 2014 was $1.2 trillion, as per the Canadian Foreign Exchange Committee.
“On an average daily basis, total turnover rose by 11.3% to $58.2 billion in April 2014 from $52.3 billion in October,” the CFEC said.
“Compared with the survey from one year ago, the average daily turnover of traditional foreign exchange productions decreased by 5.2% from $61.4 billion in April 2013…,” the CFEC said.
Australia’s FX Committee noted that total average daily turnover in all OTC instruments was $167.8 billion in April, “little changed from October 2013, but a decline of 8% over the year.”
The Tokyo Foreign Exchange Market Committee (TFEMC) noted that aggregate turnover was $362.9 billion in April 2014, down 2.6% from the $372.7 billion seen in October 2013, and but up 4.3% from the $348.1 billion seen in April 2013.
“Regarding the trading instrument, the turnover in spot transactions and foreign exchange options decreased,” the TFEMC said.
The Singapore Foreign Exchange Committee said that average daily reported “traditional” FX turnover was $291 billion in April 2014, up 2.96% from October.
John Normand, head FX and International rate strategy at JP Morgan, made these observations about the central bank data: “Based on central bank surveys turnover conducted in April 2014 and published today, FX activity is down year-on-year in all centers but Tokyo, where volumes across all products (spot, forwards, swaps, options) were up 4%. Turnover was down 6% year-on-year in the UK and Singapore, -8% in Australia and -19% in New York.”
JPM reminded however that April 2013 set a high bar given the Abenomics-related FX flows seen in yen at time.
On the region breakdown, “Measured in nominal amounts, turnover in the UK, Singapore and Tokyo is the second-highest on record,” but “for New York, however, turnover is the weakest since Oct 2012; for Sydney, the weakest since October 2011,” Normand said.
Given the strong correlation between daily FX turnover on futures exchanges and OTC activity, he maintained that FX turnover has probably declined to a five-year low since the April central bank surveys.
“By some measures, the slump in FX activity looks comparable to that in Treasuries, but not as bad as German bunds,” Normand said.
As for most actively traded pairs, in London, the top five were EURUSD, USDJPY, GBPUSD, USDCAD and EURJPY, while in New York, the top five were EURUSD, USDJPY, GBPUSD, USDCAD and AUDUSD, he noted.
In terms of emerging market currencies, “turnover growth in EM FX continues to run in double-digits per annum, well ahead of G10 growth,” Normand said.
BMO Capital Market’s Anderson noted that the average daily turnover of spot USDCAD in the UK during April 2014 was $28.1 billion, greater than the turnover of spot USDCAD in the United States, which was $23.1 billion.
“However, USDCAD trading is more important to the spot market in NY than the spot market in London, with 6.6% of all US-based spot volume being in USDCAD versus 3.5% of London spot volume being in USDCAD,” he noted.