- Hong Kong Dollar Sales
- HKD-U.S Dollar Decoupling Concerns
- S-China Tensions Over Security Law
Hong Kong Monetary Authority has swung into action to curtail further weakness in the Hong Kong Dollar (HKD) amidst a wave of uncertainties in the city. Reports indicate that the monetary authority might have sold as much as 977 million Hong Kong Dollars, all in the effort to keep the USD/HKD exchange rate around 7.7500.
Hong Kong Dollar Weakness
The Hong Kong dollar has come under immense pressure even as the city tries to bounce back from the COVID-19 pandemic fallout. Soaring tensions between the autonomous region and Beijing has spilled over to Washington, raisings serious doubts about the city’s long term prospects as Asia financial hub.
The Hong Kong Dollar has since weakened to 12-year lows amidst a wave of uncertainty in the forex market. The Hong Kong dollar has remained on the defensive in recent weeks amidst concerns that a decoupling of from the U.S dollar is imminent.
Talk of HKD- U.S Dollar decoupling has especially gained traction on the U.S President, Donald Trump, warning of a strong should China impose the controversial security law on Beijing. The Hong Kong dollar has only strengthened against the greenback on hopes that the dollar peg would remain intact amidst the soaring tensions between the U.S and China.
Hong Kong Dollar Decoupling Concern
The dollar peg is one of the catalysts behind tight liquidity in Hong Kong’s banking system, which has helped keep interest rates at 1%, much higher than those in the U.S. The higher interest rate is one of the reasons why traders have continued to hold on to the HKD.
Decoupling of the HKD from the U.S Dollar is the last thing that traders want, given its potential ramifications to one of Asia’s thriving financial hub. A move by Trump to restrict Hong Kong’s Monetary Authority access to U.S Dollar could mark an end to the HKD dollar peg, something that could significantly hurt the financial hub.
Capital outflows from the city could come into play as most people have continued to trade on the HKD due to the dollar peg. For this reason, the Hong Kong dollar has remained under pressure in recent weeks amidst the uncertainties.