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SGX Trading in SGX USD/CNH Futures continues to reach new records






8 September 2017




Market Updates























Trading in SGX USD/CNH Futures continues to reach new records


Jackson Hole has held a special place in the annual economic calendar for over three decades, and is attended by the heavyweights of the central banking world. Financial market participants, academics and policymakers globally closely watch discussions at this event for signs of policy direction and macroeconomic outlooks.


This year, Janet Yellen and Mario Draghi shared the stage as headline speakers on 25 August. Observers hoping for reassurance on the strengths of their respective economies and insight on policy issues were disappointed. Janet Yellen reiterated her continued support for the financial market reforms and regulatory changes that were initiated at the onset of global financial crisis nearly a decade ago, while also warning about the dangers of excessive de-regulation. Mario Draghi chose to advocate for open markets and also avoided discussions about policy. Despite this, comments from both central bankers helped to rally US equities as well as the Euro, which rallied to hit a 2 ½ year high. The US dollar retreated further.


Following a slide in the dollar, the PBOC raised its official guidance on 28 August. The mid-point for the currency was raised to 6.6353, the strongest in over a year. The Yuan has appreciated significantly since the start of the year and when measured by PBOC CNY Fixing, it has strengthened by 4.84 percent since end December 2016.


In August, the implied volatilities for CNH also went up, with Calls becoming more expensive than Puts. However, the ATM volatilities, that had steepened since end July, immediately flattened slightly post the PBOC announcement.



Source: SGX; Bloomberg


Even as many market pundits are already calling out the short dollar position as a crowded trade, SGX has continued to see increased trading activity in the USD/CNH Futures. In August, the SGX USD/CNH Futures saw 4 consecutive days with daily traded notional exceeding US$ 1 billion, as the currency pair had its best month since its launch with over US$ 18.1 billion traded in the month.


The SGX USD/CNH Futures also scaled new heights on daily trading volume. Having hit a record of S$ 1.12 billion on Singapore’s National Day (9 August), beating the previous high of US$ 1.10 billion achieved on 5 January 2017, increased trading activity in mid-August saw SGX reach a new record with trades worth US$ 1.35 billion on 11 August. Open interest for SGX USD/CNH Futures contracts, with 21,778 contracts as at end August, was up 105% year-on-year.


The continued growth of the SGX USD/CNH Futures provides the international investment community an important tool to seek exposure to the currency pair, as strong volumes coupled with an increasing Open interest are key barometers for international investors who look for both liquidity and sustainability.



Source: SGX; Bloomberg


SGX has benefitted from the global macro environment with FX traders continuing to bet on a weak dollar and trade emerging market currencies. The recent surge in the SGX USD/CNH Futures has helped to boost overall FX Futures volumes at the exchange, and SGX recorded its best month ever in August in volume terms. The total trading volume for the FX Futures on SGX during August was at 800,350 lots - the highest since their introduction in November 2013. This exceeded the previous volume record set in July 2017 and translates into a 75% year-on-year increase. This growth is testament to SGX’s position as a key venue for investors looking to seek and hedge the exposure to two key Asian economies, India and China.





SGX INR/USD Futures Consolidate in August


With the Rupee having gained nearly 6% against the US dollar since start of the calendar year and benchmark stock indices at record highs amidst expansion of valuation multiples, several analysts have started calling for caution on investments to India in the short term, even as the long term growth story remains intact.


Having seen significant capital inflows since February this year, the net Foreign Portfolio Investor (FPI) Flow to India turned negative in August and remained negative for most of the month. The FPI staged a modest recovery at the end of the month, aided by the continued strength in fixed income FPI inflows.


With FPIs reportedly unwinding significant exposure to their index derivative positions, a massive portfolio withdrawal from the Indian equity such as the one witnessed in August would usually weaken the Rupee. However, an extended weakness in the US dollar helped the Rupee strengthen a little over 6 paisa in the month [RBI Fix on 31 July: 64.0773 vs. 31 August: 64.0154] and the implied volatilities for the Rupee dropped even further.



Source: SGX; NSDL


A weaker US dollar amidst relatively flat net FPI inflows contributed to moderate growth for the SGX INR/USD Futures in August, with trading volumes at 604,857 lots (approximately US$ 19 billion) compared to 596,763 lots in July. This is up from 8,637 lots in January 2014.


The SGX INR/USD Futures continue to provide an important hedging tool for foreign portfolio investors who have routed more than 450,000 crore Rupees to India since January 2014, making it one of the most popular investment destinations in the last few years.









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