HKD set for longest falling streak since March 2018

The Hong Kong dollar weakened for a seventh session, its longest run of declines since March 2018, as the shelving of a large initial public offering and waning seasonal tightness helped loosen liquidity conditions.

The currency dropped again yesterday, extending a slide from its two-year high to around 0.6%. It stood at HKD7.8284 per greenback as of 5:19 p.m. local time, the weakest since June 19. Hong Kong dollar interbank lending rates, known as Hibor, continued to decline too: the overnight and one-month rates both fell for a seventh day and hit their lowest since May.

Liquidity is freeing up after a cash crunch sent interbank borrowing costs to the highest in more than a decade, helped by Anheuser-Busch InBev NV deciding to suspend an initial public offering of its Asia Pacific unit in Hong Kong. Funds had been locked up ahead of what was slated to be the year’s largest IPO. Banks are also more willing to lend following end-June regulatory checks, while companies have already paid out a large chunk of dividends.

“Liquidity became ample again as cash that was previously locked up for the IPO got released back into the market,” said Carie Li, an economist at OCBC Wing Hang Bank Ltd. “The currency will remain in the weak half its trading range, but it won’t touch HKD7.85 again as traders won’t short it aggressively amid more volatile local funding costs.”

There’s no need for the public to be concerned with occasional volatility, and the liquidity level is stable, according to Howard Lee, deputy chief executive of the Hong Kong Monetary Authority.

Shorting the city’s dollars was a winning strategy for years as investors borrowed the currency cheaply to invest in higher-yielding American assets. The trade pushed the Hong Kong dollar to the weak end of its trading band repeatedly since 2018, forcing the de facto central bank to intervene to defend its exchange-rate peg versus the greenback. This cut the interbank liquidity pool by half over the past year, making borrowing costs more volatile. Tian Chen, Bloomberg