Hong Kong dollar drops most since June
The Hong Kong dollar moved away from the strong end of its trading band for the first time since Ant Group’s initial public offering (IPO) was mooted two months ago.
The currency declined as much 0.05% Thursday (29 October), the most since 16 June, to 7.7537 vs the greenback. It pared the drop to 7.7517 as of 3:32 pm in the city.
Ant has stopped taking orders from big investors after strong demand for its Hong Kong shares. The IPO had spurred inflows into the city in recent months, prompting repeated interventions from the Hong Kong Monetary Authority (HKMA) to stop the currency from strengthening past the limit of its band against the greenback.
The local currency may weaken to 7.7550 after Ant starts trading, said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “It’s inevitable that some capital would leave Hong Kong after Ant’s subscription for institutional investors finished,” he said.
Large-scale capital flight is unlikely, said Ong, because demand for Ant’s shares and future listings by other Chinese companies should support demand for the Hong Kong dollar, he said.
The local currency strength comes at a time when the city’s economy has been pummelled by the coronavirus pandemic. The unemployment rate has climbed to a 15-year high.
The HKMA has sold a total of HKD383.5b (USD49.5b) of local dollars since April to defend its foreign exchange peg. These moves have boosted the interbank liquidity pool to the largest level on record. The Hong Kong dollar’s one-week interbank lending rate known as Hibor fell 15 bps, the most since August, to 0.48411%. – Bloomberg News.
The US Dollar Index rose 0.59% to 93.955, the euro fell 0.61% to USD1.1674, the pound shed 0.41% to USD1.2930, and the yen weakened 0.28% to 104.61 per dollar.
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