2017 Aus Financial Markets Report: Lack of volatility, absence of strong trends in AUD exchange rates
In its 2017 Australian Financial Markets Report published on Thursday, the Australian Financial Markets Association (AFMA) notes the following points on the Australian forex markets.
“Six cent high-low range in AUDUSD in 2016-17 compares with a 10 cent range in 2015-16 and 20 cents in 2014-15.
The average intra-day spot market range of 66 pips was down from 88-90 pips seen over the two preceding years.
Spot volumes fell by a third.
Reduction in macroeconomic or fundamental trading opportunities and hence a further reduction in the role of leveraged, speculative players in the spot market. Lack of volatility and absence of any strong directional trends in AUD exchange rates also reduced incentives for Australian importers and exporters to hedge.
Structural changes in the FX market are also relevant can be dated to the extreme volatility following the Swiss National Bank's abandonment of the EUR-CHF peg in January 2015, which the BIS notes 'sent shockwaves through the prime brokerage industry, causing prime brokers to raise fees and cut clients.' This reduced participation by hedge funds and other leveraged players (including High Frequency Trading firms), as well as reductions by some banks in their exposure to retail margin brokerages. Some banks have also been retreating from spot market making activities, reverting to agency-type business rather than acting as principal.“