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Article / 13 September 2016 at 14:29 GMT

BIS says FX trading is alive and well

FX Trade Strategist /
  • BIS survey shows US dollar is number one
  • Loonie lagging Aussie volumes
  • Oil market charades
 King Dollar reigns on. Pic: iStock

By Michael O'Neill

The FX market is the most liquid market on the planet. A summary of the Triennial Central Banks Survey of Foreign Exchange Market Activity, coordinated by the Bank for International Settlements (BIS) was released on September 1.

It makes for interesting reading. In April 2016, the daily average FX turnover was US $5.1 trillion dollars, down from the $5.4 trillion dollar per day turnover in 2013.  At first glance, it appears that the drop in the volume of daily spot transactions accounted for the decline. Spot transactions were $1.7 trillion/day compared to $2.0 trillion in 2013. That is the wrong conclusion. The BIS believes that the appreciation of the US dollar between 2013 and 2016 reduced the US dollar value of non-dollar currencies and when the 2013 rate was used, turnover actually increased by 4%.

The G10 currencies are the most liquid currencies. But they are not all created equal. Far from it.
No one should be surprised that the US dollar is the world’s number one currency. It is involved in 88% of all trades which is an increase of 1% from the 2013 survey. 

The euro is a distant second at 31.3%. and its usage is declining. In 2010 it was involved in 39% of all trades while in 2013 it was in 33%. Japanese yen volumes also declined, from 23.1% to 21.6%. Other currencies that lost ground were the Australian dollar and the Swiss franc.

The British pound and the Canadian dollar trading volumes increased. Sterling rose 12.8% from 11.8% and the Canadian dollar rose to 5.1% from 4.8%.

Chart FX Turnover by currency and currency pair
 Source: BIS

AUDUSD and USDCAD, not quite twins

The Australian dollar and the Canadian dollar often trade in tandem due to a number of similarities. Both countries speak English (sort of), both have Queen Elizabeth’s portrait on their bank notes, both are huge countries (in fact one is a continent) with small populations and both are resource based economies.

The Australian dollar is the more active currency. According to the BIS survey, the average daily turnover for AUD is US $135 billion/per day. That is about 57% higher than the $85.5 billion turnover in the Canadian dollar.

Not surprisingly, AUDUSD accounts for 41% of the total April turnover. In Canada, USDCAD accounts for 48% of the monthly turnover. Neither currency pair is important in the others market. AUDUSD trading in Canada is just 2.9% of the monthly volume while USDCAD trading in Australia is a similar 2.8%.

The AUDUSD/USDCAD comparison is not all that useful except when considering overnight stop loss orders. For USDCAD traders, knowing that the Loonie is a low volume currency pair in Australia/New Zealand time zones suggests that care should be taken when selecting a stop loss price. Thin markets and low volumes exacerbate the vulnerability of a stop loss and mean that extra care needs to be taken when placing these orders to avoid falling victim to a predator.

Desperately seeking direction

Oil traders are the ball in a ping-pong game of oil news. On September 8, WTI spiked on news of a massive draw down in US crude stocks as reported by the Energy Information Administration. (EIA). The next day, prices were sliding because of Boston Fed Chairman Eric Rosengren’s comments warning of the risks if the Fed waits too long to hike interest rates
On Monday, Rosengren’s comments were forgotten when Fed Governor Lael Brainard presented a convincing argument as to why US rates needed to stay low for longer. Oil prices rallied.

That rally ended on Tuesday. This time it was the International Energy Agency wreaking havoc. They released the latest Oil Market Report warning that global oil demand was slowing at a faster pace than initially predicted. Traders reacted to the headline and oil prices sank. WTI dropped from $45.92 in early European trading to $44.98 after the story.

In my opinion, that move was ludicrous. 

The actual EIA prediction is that global oil production will grow by 1.3 million barrels/per day, a mere 100,00 barrels per day less than their previous forecast. In the context of daily global oil production, 100,000 barrels is spillage. It isn’t anything more significant than when your fill your car’s gas tank and a few drops fall onto the pavement when you replace the nozzle. Total daily global oil production is 95.93 million barrels.  What’s a 100,000 barrels?
oil Source: EIA

– Edited by Clare MacCarthy


Michael O’Neill is an FX consultant at IFXA Ltd

John Shaw John  Shaw
Great article Mike. Quite interesting. Thank you for sharing with your followers.
Michael O'Neill Michael O'Neill
Thanks John. To clarify, the 4%AUDUSD turnover refers to trading in AUSTRALIA. The 48% USDCAD turnover is for trading in Canada
John Shaw John  Shaw
Got it bud.


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