© Reuters. Hong Kong Dollar Nears Weak End of Peg as Trade War Costs Mount
(Bloomberg) — Hong Kong’s currency is once again approaching the weak end of its trading band against the greenback, after a reprieve last month.
Falling demand for Hong Kong assets amid an escalation of tensions between China and the U.S. is weighing on the currency, and the gap between city’s and U.S. borrowing costs has widened after narrowing in April. This makes the local dollar more appealing to short.
Further weakness will likely prompt the Hong Kong Monetary Authority to resume interventions, after spending HK$22.1 billion ($2.8 billion) defending the currency in March. That would reduce interbank liquidity at a time when the local economy is struggling as a fragile global outlook and the trade war damps activity.
The traded little changed at 7.8494 to the greenback at 1 p.m. local time, close to the 7.85 end of its band, after rising to as high as 7.8305 in April.
The has retreated almost 5 percent in May. The gap between the borrowing costs on the Hong Kong dollar and the greenback has widened to about 70 basis points after falling to 34 in mid-April. A wider spread spurs traders to sell the local currency and put the proceeds in the higher-yielding greenback.
The weaker stock market will add downward pressure on Hibor, helping to widen the spread with Libor and increasing pressure on the Hong Kong dollar, said Samuel Tse, an economist at DBS Bank Ltd. in Hong Kong.
“If stock market weakness is sustained, that means the Hong Kong dollar will depreciate further and that will trigger HKMA intervention,” he said.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Latest posts by investing.com (see all)
- Forex – Australian Dollar Steady After RBA Decision - June 4, 2019
- Yuan Watchers Say 7 Is No Longer a Sticking Point for China - June 4, 2019
- Fresh Losses Coming for Australian Dollar, Strategists Say - June 4, 2019