HK dollar in biggest monthly gain since 2011 as peg holds

The Hong Kong dollar recorded the biggest monthly gain since 2011 on optimism that the city will maintain its peg to the greenback.
The local dollar last month slumped to its weakest level in more than eight years as a slide in the yuan spurred speculation the city’s monetary authority may be forced to abandon the link. The Chinese currency has rebounded in February, posting the biggest monthly gain since October, while the Hong Kong Monetary Authority has repeatedly said that it is committed to keeping the city’s 32-year-old currency peg.
The Hong Kong dollar advanced 0.18 percent this month to HKD7.7724 against its U.S. counterpart, the biggest increase since October 2011, data compiled by Bloomberg show. The currency rose 0.06 percent yesterday to trade near the strong end of its HKD7.75-7.85 trading range.
“The Hong Kong dollar was one of the biggest speculative targets in January, especially amid fears of the yuan being devalued,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “We need to watch the yuan, given how it’s affecting sentiment across markets. If the dollar-yuan rate continues to remain broadly stable, there’s no reason to focus on the Hong Kong-dollar peg for now.”
The Hong Kong dollar was linked to the greenback in 1983, when negotiations between the U.K. and Beijing over the city’s return to Chinese rule spurred an exodus of capital, and policy makers in 2005 committed to limiting declines to the current range.
Hong Kong’s yuan deposits rose by 0.1 percent to 852 billion yuan in January, the Hong Kong Monetary Authority said yesterday. The pool posted its first annual decline last year, while issuance of Dim Sum bonds fell for the first time since the market’s inception in 2007. Bloomberg