Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg.
The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday.
The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band.
Photo: Bloomberg
Heavy sales of the local dollar by the HKMA helped dampen Hong Kong’s borrowing rates that were elevated amid demand for the currency to subscribe shares of Contemporary Amperex Technology Co Ltd (寧德時代), which is expected to be the city’s biggest initial public offering (IPO) in years. Lower borrowing costs might also help support Hong Kong’s economy in the face of US tariffs.
The HKMA’s Hong Kong dollar sales “may help buffer potential liquidity tightness at an upcoming IPO, together with other inflows,” said Frances Cheung (張淑嫻), head of FX and rates strategy at Oversea-Chinese Banking Corp (華僑銀行) in Singapore.
The currency peg tends to result in a relatively soft Hong Kong dollar compared with peers in times of greenback weakness, she said.
Photo: Reuters
The Hong Kong dollar’s exchange rate has been on a strengthening bias recently, mainly driven by an increase in market carry-trade activities and equity-related demand for Hong Kong dollars, HKMA chief executive Eddie Yue (余偉文) told lawmakers. The local financial market has operated in an orderly manner, he said.
Demand for Hong Kong dollars in the capital market has been high of late as Chinese investors poured money into Hong Kong stocks this year. Currency conversions related to dividend payments by Chinese companies listed in Hong Kong added to the demand for the local currency.
Before Friday, the last time the HKMA intervened to cap the currency’s gains was in 2020. In comparison, it stepped into the market in 2022 and 2023 to put a floor under the currency when it threatened to breach the weak end of its trading band.
The recent rally in currencies of trade-dependent Asian economies is causing headaches for policymakers. While currency strength can help attract foreign inflows and make imports cheaper, it might hurt exporters by making their goods less competitive globally.
The New Taiwan dollar’s surge by the most in four decades prompted Taiwan’s central bank on Monday to say that it would step into the foreign-exchange market if stability was threatened.
As for the Hong Kong dollar, Citigroup Inc expects HKMA interventions to continue.
“We expect further intervention on the strong side of the trading band given greenback weakness trend may have more room to run,” Citigroup strategist Adrienne Lui (雷智顏) wrote in a note.
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