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Average daily turnover on New Zealand's foreign exchange market has ballooned to US$13 billion from US$7.5 billion in 2004 and US$4.2 billion in 2001, according to the Bank of International Settlements' latest triennial survey.
Reserve Bank Deputy Governor Grant Spencer said about 15 per cent of the increase was due to the increasing strength of the New Zealand dollar with the rest due to growth in transaction volume.
The survey of 54 central banks and monetary authorities around the world was conducted during April and captured the activity of New Zealand's four major banks. The 75 per cent increase in New Zealand market turnover topped the 71 per cent rate of increase in global turnover over the period, but the local market remains a tiny part of the overall $3.2 trillion daily turnover worldwide.
Spencer said foreign exchange derivatives including cross-currency swaps and foreign exchange options had grown particularly quickly, rising 330 per cent on 2004 to a daily average turnover of $545 million. Within the local forex market, greatest turnover was seen in the swap market where counterparties exchange interest payments in different currencies for an agreed period of time. Average daily turnover in that sector was US$9.66 billion.
Average daily turnover in the spot market was US$2.04 billion. Across the New Zealand forex market, 55 per cent of total turnover was in NZ/US dollar transactions, 21 per cent was in US/AUS and 9 per cent was in USD/EUR. NZ/AUS, USD/JPY, and USD/GBP business each accounted for 3 per cent of turnover.
Nick Smyth of the Reserve Bank's Financial Stability Department noted in the latest Reserve Bank Bulletin that the New Zealand dollar had "attracted unprecedented attention in global financial markets" in recent years.
The large increase in New Zealand dollar spot market trading volumes seen was partly due to relatively high local interest rates and the growth of electronic brokers as trading platforms.
Earlier this year, London company ICAP added the kiwi dollar to its EBS electronic trading system, providing some competition to the Reuters platform which handles about 90 per cent of the spot market turnover in New Zealand dollars.
Market watchers said the move reflected the increased international focus on the New Zealand dollar.
