Hong Kong ranks sixth in global forex market

Average daily net turnover of foreign exchange transactions jumped 31.3% to US$237.6bln.

Hong Kong maintained its sixth spot in the global foreign exchange market, according to the Bank for International Settlements triennial survey.

If transactions in the over-the-counter interest rate derivatives market are included, Hong Kong's ranking moved up from eighth in 2007 to seventh this year, according to a government report.

In terms of dollar amount increases in foreign exchange trading activity, Hong Kong posted a US$56.6 billion increase and ranked fourth after the UK, the US and Japan.

Steady course
The Monetary Authority said on Wednesday Hong Kong's results were broadly in line with global trends.

Hong Kong's average daily net turnover of foreign exchange transactions grew by 31.3% to US$237.6 billion compared with the results of 2007.

Average daily net turnover of outright forwards rose by 117.6% to US$32 billion, while that of foreign exchange swaps increased by 20.5% to US$147 billion.

Hong Kong dollar against US dollar remained the most heavily traded currency pair although its share fell from 40.5% to 29.4%, mainly because of substantial increases in other currency pair transactions.

Other currencies
Sharp increases were observed in foreign exchange transactions involving the US dollar against the euro, yen, Australian dollar and other Asian currencies. A confluence of factors, including increased market demand for cross-currency funding as well as carry-trade activities involving these currencies, may have contributed to the changes, the authority said.

Average daily net turnover of over-the-counter interest rate derivatives rose by 6.8% to US$18.5 billion. The growth was driven by forward-rate agreements and interest rate option transactions, which grew by 85.8% and 128.7%.

Turnover in Korean won denominated interest rate derivative contracts was the highest among all currencies, accounting for 25.6% of the total average daily net turnover. Market participants attributed this to many reasons, including the strong recovery of the Korean economy and an increase in market activity in anticipation of possible movements of the Korean won yield curve.

Compared to 2007, Hong Kong dollar denominated contracts fell by 68.4% this year. It was believed the drop was largely a result of the low interest rate environment prevailing for the Hong Kong dollar since late 2008, hence less incentive for pursuance of active management of short term Hong Kong dollar interest rate exposures with interest rate derivatives.