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More SGX FX futures traded in Nov amid surge in offshore yuan contracts

DESPITE subdued global currency markets, trading activity in foreign exchange (FX) futures on the Singapore Exchange (SGX) grew to US$110 billion in November, up 12.5 per cent month on month and 9 per cent year on year.

Nearly 1.88 million FX contracts changed hands on the Singapore bourse last month, bringing the year-to-date (YTD) volume to 21.5 million contracts worth some US$1.2 trillion, SGX said on Friday.

Global financial markets have been relatively less volatile for most of this year with no sustained volatility hotpots, except for the British pound, the bourse operator noted.

Key global economic themes also remained unchanged in the past few months, with the US-China trade war still dominating headlines. In the UK, Brexit woes still weighed on sentiment, and volatility in the pound has returned as the elections approach.

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In Chinese markets, the US-China trade negotiations continued to drive activity in November, after a quiet October from the extended public holidays.

Early last month, reports of a phased rollback in tariffs as part of the phase-one trade deal drove up volumes in USD/CNH (US dollar and offshore Chinese yuan) futures on SGX. In anticipation of the deal, the yuan fell below 7 against the US dollar, although this was not sustained due to concerns that discussions may be premature, SGX said.

Overall, the yuan gained 0.3 per cent against the US dollar in November despite lingering concerns on the outcome of the trade war. 

About US$79.6 billion in USD/CNH futures on SGX were traded last month, climbing 38 per cent year on year. The average daily volume rose to US$3.79 billion in November, from US$3.02 billion a month ago. 

YTD volumes of SGX USD/CNH futures exceeded US$828 billion - more than double the US$534 billion recorded for the whole of 2018, the bourse operator said on Friday. 

Open interest for SGX USD/CNH futures at the end of November was US$5.8 billion or 57,857 contracts, representing close to 70 per cent of the open interest across all exchanges with similar offerings, SGX noted.

On the other hand, in India, the rupee weakened about 1.3 per cent in November, despite strong inflows into Indian equities from foreign portfolio investors.

Rupee markets saw low volatility and weak trading momentum, resulting in trading volume for SGX INR/USD (Indian rupee and US dollar) futures totalling just above US$29 billion from 1.04 million contracts last month.

The average daily volume in November for SGX INR/USD futures was US$1.46 billion.

Key indicators in India continue to point to a lacklustre economy, SGX noted. Industrial production fell 4.3 per cent in September, the lowest in almost eight years and lower than the estimated drop of 2.5 per cent. 

"The weakening economy poses further downside risks to growth and the budget deficit. At a fiscal deficit of over 7 trillion rupees (S$130 billion), India has already surpassed its annual deficit target in the first seven months of the fiscal year," SGX said.

Moody's also cut India's rating outlook from stable to negative in November, citing a host of issues from a worsening shadow banking crunch, and a prolonged slowdown in the economy to rising public debt.