Hong Kong dollar sinking toward weak end of trading band

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Hong Kong dollar sinking toward weak end of trading band

According to Daiwa Capital Markets and Scotiabank, the Hong Kong dollar is sinking toward the weak end of its trading band and is likely to prompt the city's monetary authority to step in and support the currency in the near future.

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None of the Tesla Autopilot stirs U.S. Alarm as a disaster waiting to happen Selling of the local dollar has increased in recent months due to a hawkish Federal Reserve boosting the dollar, while the restrictions on the former British colony have hurt its growth outlook. Hong Kong's currency has fallen by 0.6% this year to 7.8445 per US dollar on Friday, near the weak end of its 7.75 to 7.85 trading range.

A breach on either side of the band prompts the Hong Kong Monetary Authority to intervene by buying or selling Hong Kong dollars from banks, causing local interest rates to go up or down. The Hang Seng Index fell 1.9% as the currency was little changed at 7.8439 per U.S. dollar on Wednesday.

Kevin Lai, chief economist for Asia ex-Japan, said that Hong Kong s dollar is likely to test 7.85 in a matter of days as investors price in a more aggressive Fed and rising Treasury yields. The Fed stance and political uncertainty in Hong Kong may spur capital outflows, while an exodus of people from the city has added to the uncertain outlook for Hong Kong dollar assets, he said.

The last time that the HKMA intervened at the weak end of the trading band was in 2019 when lower interest rates in Hong Kong than the U.S. encouraged traders to short the local currency.

If the U.S. Treasury yields go up USD HKD, the HKMA will step in and sell USD HKD to defend the currency peg, possibly this month, said Qi Gao, a currency strategist at Scotiabank in Singapore.

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