Home Forex News USD/HKD Exchange Rate Stabilizes AT 4-Year Lows Amid Security Law Fallout

USD/HKD Exchange Rate Stabilizes AT 4-Year Lows Amid Security Law Fallout

  • U.S-China Security law Standoff
  • Hong Kong Dollar Uncertainty
  • HKMA Monetary Options

USD/HKD exchange rate continues to trade at 4-year lows with the gap between the U.S and Hong Kong dollar narrowing significantly, to about a half a percentage point. The Hong Kong dollar has received a significant boost on capital inflows, following the listings of JD.com and Net Ease.

Security Law Fallout

While the Hong Kong dollar has remained resilient against the greenback in recent months, it faces its biggest test as a standoff over a new security law threatens to get out of hand.

Time                            : 07-02-2020

Pivot                           : 7.7501

Technical View           : Short Below 7.7499

Targets                        : Target 1, 7.7497 – Target 2, 7.7493- Target 3, 7.7491

Comments                  : Weak Bearish

Last Price: 7.7493

In recent months, the U.S and China have been entangled in a fierce standoff over a security law that the U.S fears will hurt its interests in Hong Kong as a global business hub. The U.S House of Representatives has already passed legislation that calls for stiffer penalties for banks as well as Chinese officials that implement the proposed national security law.

The U.S has already started eliminating Hong Kong’s special status that has allowed it to thrive as a hub for international trade. The halting of defense exports and restrictions of access to high technology products also continues to arouse concerns about Hong Kong’s future.

Hong Kong Dollar Outlook

The standoff has already elicited concerns for how long the Hong Kong-dollar peg will stay in place, given that it is what has continued to fuel trade within the autonomous territory. Hong Kong dollar could weaken as tensions between China and the outside world get out of hand.

For starters, the collapse of Hong Kong’s currency is highly likely on investors shunning the financial hub resulting in the massive capital outflow. Amidst the uncertainties, the Hong Kong Monetary Authority says it has what it takes to support the Hong Kong dollar amid the headwinds, The fact that the world is grappling

with rock bottom, interest rates make it easier for the monetary authority to act swiftly when needed.

For instance, if there was strong outflow, the de facto central bank could essentially raise interest rates to help support the Hong Kong dollar. The HKMA also boasts of a massive $442 billion line of defense in foreign exchange reserves.


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