Hong Kong Monetary Authority intervenes at 7.75 to keep currency inside band
The Hong Kong dollar is pegged to the US Dollar at 7.80 HKD to 1.00 USD since 1983. Policy makers set a upper and lower limit of 7.75 and 7.85. With the 29 year peg in place, there is little room for directional movement. However, there was recent news that Hong Kong Monetary Authority (HKMA) intervened to sell thrice. This caught my attention. I am interested to know on whether there is a trading or investment opportunity here.
HK Dollar testing 7.75 regularly since 2005; the more ‘tests’ the great investors hope for breakout
Hong Kong Dollar has been testing the 7.75 cap
My research found that:
Capital inflows into Hong Kong stock and property markets drive demand for Hong Kong Dollar
Inflows partly driven by monetary easing in US and Europe
Mainland Chinese traveling to Hong Kong
Hong Kong allowing foreigners to migrate through property investment
Hong Kong’s credit rating upgraded by Moody’s added the confidence in currency
Strong China (mainland) trade performance, led to increase in Hong Kong’s trade and trade related services
Because of these factors, we are seeing the HKD test 7.75 regularly since 2005. HK Dollar is visibly appreciating against the US Dollar.
Upward pressure on Hong Kong Dollar may be a long term trend
Although global growth may be slowing, I feel that some of the factors we see are here to stay. For example, Hong Kong competitiveness and China’s growth will persist despite there may be temporary setbacks. At the moment, there is very little opportunity in the way of scalping or even swing trading. However it would be interesting to look at it as a long term investment where there is certainly a chance that the Hong Kong Dollar could be re-pegged in a way where it strengthens against the US Dollar. In the meantime, the actions by the Hong Kong Monetary Authority may have just begun but might not be the last we see.