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.
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
The New Taiwan dollar and Taiwanese stocks surged on signs that trade tensions between the world’s top two economies might start easing and as US tech earnings boosted the outlook of the nation’s semiconductor exports. The NT dollar strengthened as much as 3.8 percent versus the US dollar to 30.815, the biggest intraday gain since January 2011, closing at NT$31.064. The benchmark TAIEX jumped 2.73 percent to outperform the region’s equity gauges. Outlook for global trade improved after China said it is assessing possible trade talks with the US, providing a boost for the nation’s currency and shares. As the NT dollar
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading
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