NAB's new trading head sets sights on EM FX

Locating the global foreign exchange business head of a regional bank in London sends a fairly strong message to the market that the entity concerned is not just confined to its geographic heartland but has global ambitions.

The recent appointment of David Jones as global head of FX trading at National Australia Bank (NAB), in London rather than Sydney, has a similar effect. Like other regional banks that have beefed up their London FX teams in recent years – notably Bank of Montreal, Commonwealth Bank of Australia and SEB – NAB has clear ambitions to grow its turnover outside Australia, particularly in emerging markets (EM).

“You only have to look at the Bank for International Settlements data to see the majority of flow still goes through the northern hemisphere and predominantly London. So it makes sense to have a good focus on the UK, but obviously we are still an Australian bank and we still have a very big business in Australia,” says Jones.

Jones has been at NAB since 2004, having worked previously at Westpac, Credit Suisse and TD Securities. He was formerly head of the FX global capital markets (GCM) team but now replaces Tom Pragastis, who left his Sydney-based role as NAB’s global head of FX and commodities trading and financial institutional sales in March. Jones reports to Chauncy Stark, global head of structuring and hybrids in London, and has his eyes set firmly on emerging markets.

“All banks have spot, forwards and options businesses but not all have a business like FX GCM, our internal proprietary business. The risk we take in this business helps us engage with the fast-money community far better and we are taking risk in emerging markets on a relative value basis. For example, we are long Brazilian real, short South African rand on a cross, and we have been long Indian rupee and short Singaporean dollar on a cross,” says Jones.

A lot of people can price EM, but if you are not running risk in it, if you don't understand it and feel it, I don't think you can really say you are involved

“Articulating those structures, which we are building and running ourselves, to clients shows we have experience and knowledge in those markets. A lot of people can price EM, but if you are not running risk in it, if you don’t understand it and feel it, you can’t really say you are involved.”

NAB’s focus on EM FX is not only driven by risk appetite and client demand, but it also makes sense structurally, Jones adds. The bank’s G-10 forwards team now falls under the remit of the rates business, leaving the EM forwards business under Jones. The bank has two EM traders in Hong Kong, two in London, one in New York, and an established EM team in Sydney.

Last year, NAB completed a three-year project to upgrade its electronic systems and streamline its FX capabilities onto a new platform developed by risk management technology vendor Murex. The new technology is now bedded in and will be rolled out in New York and London within the next two months. It will also be upgraded to the latest version early next year.

NAB’s home currency has fallen in recent weeks following an interest rate cut by the Reserve Bank of Australia (RBA) on May 7. Having reached a high of 1.06 in early April, AUD/USD fell to 0.96 at the end of last week, according to data from Thomson Reuters. Jones believes the Australian dollar is no longer attractive to clients looking for high-yield investments.

“I think the shine has already come off the Aussie dollar and will continue to do so,” he says. “The fact we have seen a downturn in the mining industry plus the Treasury, government and RBA have all said the strong dollar has been damaging the Australian economy says it all. At the same time, the market has become comfortable being long the Australian dollar and picking up yield, but now that yield is disappearing and the market is nervous about the growth story in China. All of that coming together means we will ultimately see further liquidations in long Aussie positions.”