Aussie dollars to the dollar and Australian dollar-denominated swaps could rise further this week as the Government’s GST announcement has triggered a surge in foreign exchange market activity.
Australian dollar-based options, such as the Aussie 100, Aussie 20 and Australian 10, could rise this week by 1.5 per cent or more in response to the Government imposing GST on imports of some goods, according to the Australian Commodities Futures Trading Commission (CFTC).
The CFTC said the spike in foreign currency options would likely be driven by an increase in the price of the Australian dollar.
“Aussie dollars have been gaining momentum in the past week due to the GST announcement, but this may be partly due to increased demand in emerging markets such as China,” CFTC spokeswoman Lisa Kelly said.
She said options in Australian dollars were traded on the futures market and could fluctuate over time as a result of the GST.
The spike in options is part of the global movement of foreign currency into the Australian Dollar market following the Australian Government’s announcement of the first tax on foreign direct investment in a national economy.
Foreign direct investment is a measure of capital that has come into a country through foreign direct purchasing and foreign direct lending.
It’s a form of capital flowing from other countries into Australia’s economy.
Foreign direct investment, which has grown in recent years to around $500 billion, is currently capped at $15 billion.
Under the GST, Australia will levy a 10 per cent tax on all imports and exports of goods and services from countries such as Japan, Vietnam, Malaysia and South Korea.
On Thursday, the Government announced that the GST would not apply to foreign direct investments from those countries.
There is currently a limit on foreign investment into Australian companies and the Government has previously said it would not impose any new taxes on foreign capital.
But the GST will now apply to imports of goods from those three countries.
The CFCT warned that the increase in foreign options would be an opportunity for the market to see the effect of the Government and the announcement of GST.
“Foreign exchange rates can be volatile and potentially volatile, which is why it is important for traders to take the time to determine whether they have the right exposure to Australian dollars or foreign currencies to the exchange rate fluctuations, particularly as the GST has taken effect,” Ms Kelly said