The Hong Kong dollar returned to the strong end of its trading band yesterday, increasing the likelihood of the city’s de facto central bank stepping in to defend the peg.
The Hong Kong dollar traded at 7.7500 per greenback yesterday afternoon, according to data compiled by Bloomberg. It has strengthened 0.5% this year, making it the second-best performer among 31 major currencies, after the yen.
Funds have flowed into Hong Kong to take advantage of higher interest rates relative to the greenback. In response, the Hong Kong Monetary Authority (HKMA) has sold HKD7.71 billion ($995 million) of local dollars since first intervening on April 21.
The Hong Kong dollar is pegged to the U.S. dollar in a band that ranges between HKD7.75 and 7.85 to the U.S. dollar. In turn, the Macau pataca is fixed to the Hong Kong dollar at an exchange rate of 1.03. As the Hong Kong dollar is pegged to the greenback, both special administrative regions essentially import U.S. monetary policy, although local banks are not obliged to follow with lower retail costs.
The selling of Hong Kong dollars by the HKMA will add to liquidity in the city, which is suffering from the effects of the coronavirus pandemic. DB/Bloomberg
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