The Hong Kong Monetary Authority (HKMA) intervened in the foreign exchange market for the second time in seven days as interest rate disparity and carry trades pushed the local dollar to the weak side of its trading band.
The authority sold US$2.55 billion during New York trading hours on Tuesday and bought the equivalent of HK$20.02 billion at HK$7.85 per US dollar, it said on Wednesday. The move would trim the aggregate balance – a measure of the banking sector’s liquidity – by the same amount to HK$144.2 billion on July 3, it added.
Hong Kong pegged its currency to the US dollar at HK$7.80 in 1983 and in 2005 allowed its value to swing within a narrow band of HK$7.75 to HK$7.85. The HKMA is obliged to intervene to protect the trading band under its commitment to the linked exchange rate system.
HKMA chief executive Eddie Yue Wai-man last week said the local dollar came under pressure as demand weakened because listed companies had completed their dividend payments and funds raised from initial public offerings were converted into other currencies for repatriation.
“The intervention was due to the Hong Kong dollar continuing to stay on the weak side of the trading band,” said Samuel Tse, a senior economist and strategist at DBS Bank in Hong Kong. The gap between the Hong Kong and US interest rates, at close to three percentage points, was fuelling carry trades, he added.
