Average Daily Forex Trading in Q3 at $49.56 Billion... 4.7% Decrease

[Asia Economy Reporter Kim Eun-byeol] The average daily foreign exchange transaction volume of foreign exchange banks decreased in the third quarter as the exchange rate stabilized downward and the inflow of foreign securities funds slowed.

According to the "2020 Q3 Foreign Exchange Transaction Trends of Foreign Exchange Banks" announced by the Bank of Korea on the 28th, the average daily foreign exchange transactions (spot and foreign exchange derivatives transactions) of foreign exchange banks in the third quarter amounted to $49.56 billion, down $2.46 billion (-4.7%) from the previous quarter ($52.02 billion).

The spot foreign exchange transaction volume was $19.72 billion, down $590 million (-2.9%) from the previous quarter, and the foreign exchange derivatives transaction volume was $29.83 billion, down $1.87 billion (-5.9%) from the previous quarter. By bank type, domestic banks' transaction volume was $24.37 billion, down $200 million (-0.8%) from the previous quarter, while foreign bank branches' transaction volume was $25.18 billion, down $2.26 billion (-8.3%) from the previous quarter.

A Bank of Korea official explained, "This is mainly due to the downward stabilization of the exchange rate, the slowdown in the inflow of foreign securities funds, and the decrease in short-term foreign currency funding demand by foreign exchange banks, which led to a decrease in related foreign exchange derivatives transaction demand."

In fact, the won-dollar exchange rate fell from an average closing price of 1,220.2 won in the second quarter to 1,188.0 won in the third quarter. The daily volatility of the won-dollar exchange rate also dropped from an average of 0.45% in the second quarter to 0.24% in the third quarter. The net purchase volume of foreign securities funds decreased from $2.82 billion in the second quarter to $2.08 billion in the third quarter.

The average daily spot foreign exchange transaction volume in the third quarter was $19.72 billion, down $590 million (-2.9%) from the previous quarter. Won-dollar transactions decreased by $1.11 billion (-7.5%) to $13.72 billion, while won-yuan transactions ($2.69 billion) and dollar-euro transactions ($1.12 billion) increased by $420 million (18.4%) and $280 million (34.1%), respectively. By bank type, domestic banks' transactions ($11.62 billion) increased by $250 million (2.2%), but foreign bank branches' transactions decreased by $840 million (-9.4%) to $8.11 billion.

By counterparty, transactions between foreign exchange banks ($9.1 billion) and with non-residents ($4.52 billion) decreased by $420 million (-4.4%) and $210 million (-4.4%), respectively, while transactions with domestic customers ($6.1 billion) increased by $40 million (0.6%).

Additionally, the average daily foreign exchange derivatives transaction volume was $29.83 billion, down $1.87 billion (-5.9%) from the previous quarter. Forward exchange transactions ($8.57 billion) decreased by $740 million (-8.0%), mainly due to non-residents' NDF (non-deliverable forward) transactions. Foreign exchange swap transactions, centered on foreign exchange bank transactions, decreased by $980 million (4.6%) from the previous quarter to $20.04 billion.