Hong Kong Monetary Authority (HKMA) is reported to have bought HK$4.4 billion worth of the Hong Kong dollars to prop up the said currency.
The Hong Kong dollar was trading at the weak end of its trading band yesterday as the capital outflows fueled by bets on rising interest rates in the US sent the Hong Kong dollar to the weak end of its permitted 7.75-to-7.85 per greenback trading range.
The aggregate balance will decrease to about HKD315.6 billion on June 16.
“The US Federal Reserve’s rate hike pressure could spread to the Hong Kong dollar market in the next three months,” Ken Cheung, chief Asian foreign exchange strategist at Mizuho Bank wrote in a note.
“The HKMA will need to follow Fed’s aggressive tightening cycle under the peg,” hence it is widely expected that the city’s pace of rate hikes could be faster than emerging markets in Asia.
The Hong Kong dollar has been facing selling pressure this year as a result of hawkish Federal Reserve, which triggered a rally in the US currency, undermining the appeal of Hong Kong assets.
While, the surge in US inflation on Friday led to bets of faster rate hikes by the Fed and led to a surge in the greenback.
According to the HKMA, this came as Hong Kong’s Exchange Fund, which is used to back the local currency, saw its foreign assets drop by HK$8.6 billion to HKD3.84 trillion in May.
To recap, the HKMA bought a total of HK$18 billion of the local dollar between May 11 and May 16 after the currency breached the weak end of the band.
