The Buzz | Hong Kong intervenes to defend peg for 1st time since May

Hong Kong intervened to defend its peg to the dollar for the first time in three months after the local currency fell to the weak end of its trading band. The Hong Kong Monetary Authority bought HKD2.159 billion (USD275 million) of local dollars during New York trading hours Tuesday, according to the de facto central bank’s page on Bloomberg. The last intervention was on May 18. The city’s currency traded at HK$7.8500 as of 4:22 p.m. local time. The permitted trading range for Hong Kong dollar is HK$7.75-7.85 against the dollar.

The Turkey-induced turmoil in emerging markets has spurred risk aversion among investors and strengthened the greenback, putting the Hong Kong dollar under pressure. Lower rates than the U.S. have also made the local currency an attractive target for shorting. “Further intervention cannot be ruled out as Hong Kong dollar is trading very near HK$7.85 per dollar,” said Frances Cheung, Singapore-based head of Asia macro strategy at Westpac Banking Corp.

The HKMA has spent HK$72.5 billion so far this year protecting the currency system, which has the effect of tightening liquidity in a city that’s enjoyed ultra-low borrowing costs as it imports U.S. monetary policy. The aggregate balance of the banking system will drop to HK$107.25 billion Thursday.