For a pegged currency, Hong Kong’s dollar is once again posting some outsized moves.
The currency, which has been linked to the greenback since 1983, is falling at the fastest pace in 14 months as a widening interest-rate gap with the US reduces the lure of the territory’s assets.
Local banks, awash with capital and competing for red-hot mortgage demand, are in no rush to follow the US Federal Reserve and charge more for loans.
That means further weakness ahead for the Hong Kong dollar, according to Mizuho Bank Ltd and Standard Chartered PLC.
“We are bearish on the Hong Kong dollar,” Mizuho Bank foreign-exchange strategist Ken Cheung (張建泰) said.
“The interest-rate differential between the currency and the greenback will persist and investors will want to chase the higher-yielding greenback,” he said.
While the Hong Kong dollar is still far from the lower end of its trading band of HK$7.85 against the greenback, its decline is drawing attention in a world where currency pegs are becoming rarer. The Hong Kong dollar has fallen 0.3 percent this year and touched HK$7.7849 on Tuesday, its weakest level since February last year, when the last selloff was subsiding amid jitters about both mainland China’s economy and the end of an era of ultra-low borrowing costs.
“The Hong Kong dollar typically doesn’t move much, but everyone pays attention when it does,” said Eddie Cheung (張敬勤), a Hong Kong-based foreign-exchange strategist at Standard Chartered.
The premium of the one-month US interbank rate, known as LIBOR, over Hong Kong’s HIBOR widened to 60 basis points on Tuesday, the most since December 2008. The Hong Kong dollar’s funding cost has declined 36 basis points this year as the greenback’s climbed 22 basis points.
Investors are borrowing the currency in the money market and dumping it in the spot and forwards foreign-exchange market for the greenback to take advantage of the swelling rate gap, Ken Cheung said.
Eddie Cheung said the currency will continue to decline to test HK$7.82, because possible future rate hikes in the US will support LIBOR, while liquidity in Hong Kong is likely to stay ample.
Ken Cheung said he sees the local dollar weakening to as low as HK$7.79.
The Hong Kong dollar was linked to the greenback more than three decades ago when negotiations between the UK and Beijing over the territory’s return to Chinese rule spurred an exodus of capital and policymakers in 2005 committed to limiting moves to the range HK$7.75 to HK$7.85. The currency was trading down 0.04 percent at HK$7.7823 yesterday afternoon.
It is expected that the Hong Kong dollar will weaken under the linked exchange rate system when the US dollar interest rate rises above the local rate, a Hong Kong Monetary Authority spokesperson wrote in an e-mail.
The authority will ensure the stability of the exchange rate in accordance with the currency board system, the spokesperson said.
The gap between the Hong Kong and US dollar rates has gone a bit too far, Societe Generale SA strategists Frances Cheung (張淑嫻) and Amit Agrawal wrote in a note yesterday.
There are no signs of capital outflows, they said.
Facing the rapidly evolving global COVID-19 pandemic, Citibank Taiwan Ltd (台灣花旗) has proactively taken precautionary measures. “The health and safety of our colleagues and their families, as well as our clients and the communities we serve, are of the utmost importance. We continue to take proactive measures to preserve their well-being while we maintain our ability to serve our clients,” Citibank Taiwan chairman Paulus Mok (莫兆鴻) said in a statement yesterday. “We have local and regional contingency plans in place, and we have well-established business continuity plans for the firm. We are monitoring the situation closely, adjusting our operations accordingly,
UPGRADE AND TRANSFORM: Although the cross-strait trade deal might remain, the Ministry of Economic Affairs said businesses should prepare for any disruptions Taiwan might face a decline in foreign trade with China if the cross-strait Economic Cooperation Framework Agreement (ECFA) ends this year, Minister of Economic Affairs Shen Jong-chin (沈榮津) said yesterday. The agreement, which was signed and put into effect in 2010 to reduce trade barriers across the Taiwan Strait, is expected to end this year, despite not having an exact termination date. “We have not received notification [from China] that it wishes to terminate ECFA,” Shen told reporters prior to attending a meeting at the Legislative Yuan. “Even if we are notified, the agreement would only cease after six months.” While acknowledging the
GoShare, an electric scooter sharing service provider with Gogoro Inc (睿能創意), plans to expand to Tainan next quarter in a strategic alliance with Aeon Motor Co (宏佳騰). The company currently offers its services in Taipei and Taoyuan. “Tainan is very popular among tourists. The city receives an average of 22.94 million tourists every year,” GoShare head Henry Chiang (姜家煒) told a news conference yesterday in Taipei, citing Tourism Bureau statistics. “Besides, the city has a long history of riding scooters,” he said. Each household owns an average of 2.5 scooters, he added. “Expanding presence” is one of four strategies GoShare is adopting for this
Three major hotel chains yesterday launched a joint campaign to aid their coronavirus-affected businesses by giving employees NT$100 million (US$3.31 million) of hotel vouchers. L’Hotel de Chine Group (LDC, 雲朗觀光), Hotel Royal Group (老爺大酒店集團) and Caesar Park Hotels and Resorts (凱撒飯店) teamed up to prevent a further decline in business as foreign tourist arrivals have come to a virtual standstill amid travel restrictions and health worries. “We decided to set aside competition and join forces to prop up the industry is bearing the brunt of diminished economic activity,” LDC president Emile Sheng (盛治仁) told a news conference at Caesar Metro Taipei Hotel