The HK Dollar has appreciated at the greatest level in months this week following appetite from many global banks to stock the currency. The upward movements follow last week’s HKMA decision to intervene as the HK Dollar slipped to critical levels.
Why is the bank in the Bank intervening?
The Hong Kong Monetary Authority intervened again last week, selling three tranches of USD totalling $1.41 Billion, buying HK Dollar in order to balance itself. The HK Dollar is pegged to the USD however the HKMA is charged with maintaining the trading range between HK$7.75-HK$7.85. When HK Dollar pricing breaches the trading range the central bank is expected to step in and support the currency peg.
So far, the Hong Kong Monetary Authority has stepped in 16 times purchasing a total of HK$ 67.2 Billion.
The decline in the Argentinian Peso spooking the HK Dollar?
Some of the HK Dollar’s decline is believed to have been sparked by a plummeting Argentinian Peso with Argentina seeking assistance from the IMF. In order to evade an economic crisis, Argentina requested a US Dollar 30 Billion credit line following aggressive measures failed to stabilise the economy. The measured included interest rates being increased from 30.25% to 40% and intervention failed to stop the rapidly depreciating Argentinian Peso.
The turmoil in emerging markets now being seen spilling into areas of the Asian markets and affecting HK Dollar pricing and sentiment.
HK Dollar performance against US Dollar this month
Before the HKMA’s intervention, the USD/HKD was hovering around the 7.85, near the limit of tolerance that is overseen by the HKMA. As news filtered through that the HK Monetary had intervened the HK Dollar gained value and USD/HKD dipped slightly to 7.8496. The largest declines in the pair, however, were seen at the beginning of last week. A rapid sell-off saw the pair touch 7.8482 on the 21st of May.
USD-HK Dollar declines have continued, almost certainly exacerbated by the recent political U-turn between the US and North Korean leader Kim Jong Un. The historic summit which was due to have taken place in Singapore on June the 12th has now been called off.
The US Dollar continued to trade lower against its Hong Kong counterpart in the final trading days of the week touching a low of 7.8432, before closing this weeks trading at 7.8457. With the continual USD volatility, it remains completely tangible that the HKMA could be forced to intervene again in the medium term to sustain the currency peg with the US Dollar, especially as talks of trade wars and world political meetings continue to play havoc with the USD.