SGX currency futures traded up 59% in 2017 on rupee, offshore renminbi contracts

TRADING activity in Singapore Exchange (SGX) currency futures shrugged off traditional year-end blues and spiked as 2017 drew to a close, the bourse operator said.

The year's trading volume in currency futures rose to nearly 10 million contracts, a jump of 59 per cent on the previous year, according to a report released on Tuesday on the SGX My Gateway investor education portal.

Much of the trading growth came in the second half of the year, driven by a flurry of trading in both Indian rupee (INR) futures and the offshore renminbi (CNH) market.

Full-year volume for SGX INR/USD futures was up by 40 per cent on the previous year, to roughly 7.96 million contracts, as India was a favoured investment destination that was marked by volatility all the same.

The notional value of these contracts rose from US$168 billion in 2016 to more than US$245 billion in 2017.

The SGX My Gateway report pointed to recent economic initiatives, such as the introduction of a standardised goods and services tax (GST) in India, as factors driving currency futures trading.

"While the GST reform is likely to drive revenue growth in the long term, its short-term impact has been negative, as tax revenue from GST has fallen since the implementation of the new system remains a work in progress," it said.

The possibility of missing revenue targets has prompted more government borrowing and bumped up sovereign bond yields.

"The impact of these changes on the currency markets tends to be significant and SGX has benefited from the spurts in volatility over the year."

Meanwhile, USD/CNH futures trading beat out the pessimism in early 2017, when the yuan looked like it would slide for a third year.

Instead, futures trading against the greenback nearly quadrupled against the previous year in both contracts volume and notional value, to 1.9 million contracts worth US$190 billion.

The growth came on the back of the yuan's 5.7 per cent gain against the US dollar in 2017.

This strengthening was partly thanks to the yuan's inclusion in the International Monetary Fund Special Drawing Right reserve basket in late 2016.

Amid recent tensions on the Korean Peninsula,the yuan usurped the greenback as a safe-haven currency.

A historic Communist Party congress in October 2017 and the central bank's boost to the reference rate in December also gave the offshore renminbi its wings back.

"The appreciation in renminbi over the year had a significant impact on the trading volume for SGX USD/CNH Futures," said the report, "as the trading activity increased in tandem with SGX seeing steep increase in trading volume for the USD/CNH futures in 2017."

The SGX saw 126 trading days in 2017 with trades in excess of US$1 billion for at least one of these two currencies.

Trading for SGX INR/USD futures enjoyed 105 days above this level - from just 29 the year before - while USD/CNH futures bested the mark on 54 days, after crossing the threshold for the first time in January 2017.