Hong Kong’s de facto central bank stepped in for the first time since 2009 to prevent the city’s currency from rising against the US dollar after it touched the upper limit of a range that triggers an intervention.
The Hong Kong Monetary Authority (HKMA) said it bought US$603 million at HK$7.75 per dollar, which is the so-called strong side of the permitted convertibility range of HK$7.75 to HK$7.85 that obligates intervention. The move, announced in an emailed statement on Saturday, was confirmed by spokeswoman Rhonda Lam (林耘) who said the HKMA acted during New York trading hours.
“Funds continue to flow into Hong Kong given the monetary easing in the US and Europe,” said Kenix Lai (賴春梅), a currency analyst at Bank of East Asia Ltd in Hong Kong. “That’s evident by the rising stock market and property prices. I expect HKMA will still have to intervene in the near term as capital inflows continue.”
Policy makers from around the world have bemoaned the economic threat of stronger exchange rates from the US Federal Reserve’s monetary easing. At IMF meetings in Tokyo this month, Brazil’s Finance Minister Guido Mantega vowed to shield his country from the “selfish” monetary policies of some developed nations, while Philippine central bank Governor Amando Tetangco said the Fed was causing “challenges to monetary policy in emerging markets.”
The Fed initiated a third phase of so-called quantitative easing on Sept. 13, purchasing US$40 billion of mortgage-backed securities per month, and said this will continue until the outlook for jobs improves “substantially.”
The European Central Bank (ECB) and Bank of Japan (BOJ) have also added to stimulus. The ECB pledged last month to buy the bonds of governments that agree to austerity conditions while the BOJ boosted its asset-purchase fund by YEN10 trillion (US$126 billion) and abandoned a minimum yield for the bonds it purchases.
“The recent increase in demand for the local currency is related to a less strained European market, weakness in the US dollar and declining US interest rates, which have prompted capital inflows into currency and equity markets in the region,” the HKMA said.
“Upward pressures have similarly been observed in other Asian currencies,” it said.
Emerging-market equity funds tracked by EPFR Global Research recorded their sixth straight week of inflows for the week ending Oct. 17, bringing inflows to more than US$21 billion so far this year, according to a statement from the company. Commitments to China equity funds reached a seven-week high, with flows attributable to domestically-domiciled funds at the highest level in more than four months, it said.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s most-active currencies, rose 0.1 percent in the week ending Oct. 19 and touched 117.87 on Oct. 18, the highest level since February. The Hong Kong dollar gained 0.02 percent in the week to close at HK$7.7503 per US dollar.
The rally in the Chinese currency, which touched a 19-year high of 6.2446 per dollar on Oct. 18, has spurred demand for the Hong Kong dollar as investors bet the city’s economy and stock market will benefit from a growth rebound in China.
The currency gains “reflect the shifting investment sentiment toward the Chinese economy,” Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia, said in emailed comments yesterday.