Active trading in forex with average daily turnover exceeding US$ 1 billion

Active trading in forex with average daily turnover exceeding US$ 1 billion

Market transaction summary

There were 18 working days in October 2003. The accumulated turnover of the four trading currencies amounted to 18.06 billion in US dollar terms. The average daily turnover stood at US$ 1.003 billion, up 75.26 per cent versus last month and increasing by 106.81 per cent year-on-year. From January to October, the interbank forex market witnessed an accumulated trading volume of US$ 114.251 billion with an average daily turnover of US$ 549 million.

As compared with last month, the average daily turnover increased for the USD, the HKD, the JPY and the EUR, while the JPY changed slightly. Compared with the same period last year, the average daily turnover for the USD, the HKD and the EUR increased significantly, but decreased for the JPY.

The USD finally stopped falling and then remained stable. The weighted average price of the USD at the beginning of October was 8.2771, the highest of this month. During this month the USD weighted average price reached its low of 8.2765. Values closed at 8.2766 at the end of October, four bps lower than that of last month.

The HKD slipped down for the month. Early on, the weighted average price of the HKD was 1.0714, the highest value for the month. From this point, the HKD fell steadily throughout the month until the weighted average price of HKD reached a low at 1.0655. The low was 27 bps lower than the previous month.

The JPY climbed steadily. In early October, the weighted average price of the JPY was 7.5435. Throughout the month, values peaked at 7.6531 and dipped to 7.5257. Final closing values reach 7.5969 by month's end, 1393 bps higher than the previous month.

The EUR fluctuated slightly for October. The weighted average price of the EUR for early October was 9.7428. During this quarter, the weighted average price of EUR reached a high of 9.7974 and a low of 8.5916. Final closing values hit 9.6154 at the end of this month, 43 bps lower than that of last month.

Compared with September, daily supply and demand of the forex market increased significantly, with forex supply exceeding the demand by US$ 4.431 billion. The average daily surplus went up by 82.24 per cent over the previous month and 177.34 per cent over the same period last year.

In October, nine financial institutions handled 11 interbank forex deposit deals, accumulating a turnover of US$ 137 million. The trading varieties were within two weeks. The average overnight and 2-week funding rates were 1.0525 per cent and 1.2940 per cent respectively. Quotations for medium and long-term forex deposit were comparatively active. Funding rates were higher than those seen in international markets.

Brief analysis

The national economy grew fast. According to the National Statistics Bureau, in the first three quarters GDP achieved 7.9114 trillion, up 8.5 per cent over the same time of last year. The growth rate of the third quarter was 9.1 per cent, higher than that of the second quarter by 2.4 per cent. This indicates that the national economy has gotten over the sluggish influences of SARS, and has finally resumed a rapid increase in growth.

Trade surpluses decreased, and trade balances may experience changes soon. Primary statistics from Customs showed that the grand total of exports and imports from January to September of this year hit US$ 606.26 billion, with a year-on-year increase of 36.2 per cent. During this period, surplus was measured at US$ 9.15 billion, a 54.3 per cent decline from the previous year. During the first nine months of 2003, the volume for exports and imports were US$ 307.7 billion and US$ 298.56 billion, up 32.3 per cent and 40.5 per cent from a year earlier respectively. In September 2003, the volume for exports and imports were US$ 41.94 billion and US$ 41.65 billion. The surplus was US$ 290 million, an 86.7 per cent decline from a year earlier. According to the Situational Report of China's Foreign Trade, China's foreign trade development should pay close attention to four issues: first, the influence of tax rebate mechanism reforms on exports; second, the increasing threat of trade protectionism against the exports from China; third, strenuous work to be expected during the transitional period after accession into the WTO; fourth, China's trade balance may change remarkably.

Actual utilization of FDI decreased in October. Statistics from the Ministry of Commerce demonstrated that from January to September of 2003, the number of new foreign-invested enterprises was 29,539, up 18.59 per cent compared with the same time of last year. Contracted FDI reached US$ 79.2 billion, up 35.97 per cent year-on-year. Utilized FDI raised to US$ 40.24 billion, up 11.85 per cent over the same period last year. In September 2003, utilized FDI was US$ 3.56 billion, down 30.3 per cent year-on-year, declining for the fourth consecutive month.

Many factors contributed to the increasing forex turnover. Recently, though especially in October, the interbank forex market witnessed the dramatic increase in forex turnover. There is the long term fundamental factor of the development of an export-oriented economy. There are still some contingent factors, such as the East Wind Automobile's selling of forex capital, the QFII's selling of its investment fund, as well as authorized banks selling off forex, and foreign trade enterprises selling off forex in advance. In addition, the anticipation of RMB appreciation led to capital inflows and the corporations and individuals' selling off forex deposits. All of these factors increased the supply of forex in the market. Recently, the quoted price of one-year RMB NDF increased by about 2800 bps.