Want to invest in HK Dollars? Will USDHKD go below 7.75?

Long term currency investors may want to monitor HK Dollar

USDHKD is creeping towards 7.75. A collision will take place between currency investors, traders and Hong Kong Monetary Authority when this exchange rate goes below 7.75.

USDHKD

Approaching 7.75

At the moment, the Hong Kong Dollar is pegged to the USD at 7.80 with upper and lower limits of 7.75 and 7.85. USDHKD is not a currency pair one will consider trading but there is fruit for thought if one considers the benefits of a long term currency investment. Especially as the fundamentals between US and Hong Kong economy continues to diverge.

 

What happened the last time USDHKD traded below 7.75?

Massive intervention by the Hong Kong Monetary Authority.

HKMA intervenes to curb HK dollar strength after capital inflows

Oct 20 (Reuters) – The Hong Kong Monetary Authority (HKMA) stepped in to the currency market on Saturday for the first time since December 2009 as capital inflows strengthened the Hong Kong dollar, causing it to hit the top end of its trading range.

The HKMA sold $603 million worth of Hong Kong dollars at the strong-side of the trading range of HK$7.75 to a U.S. dollar in a move that will lift its aggregate balance — the sum of balances on clearing accounts maintained by banks with the authority — to HK$153.3 billion on Oct. 24.

 

HKMA intervenes to defend HK dollar peg, selling HK$3.875 bln

Nov 29 (Reuters) – The Hong Kong Monetary Authority (HKMA) stepped into the currency market on Thursday, selling HK$3.875 billion ($500 million) in Hong Kong dollars as the local currency repeatedly hit the strong end of its trading range.

 

Hong Kong Dollar chart

HK Dollar testing 7.75 regularly since 2005

 

HKMA intervenes to defend HK dollar peg, selling HK$6.2 bln

Dec 11 (Reuters) – The Hong Kong Monetary Authority (HKMA) stepped into the currency market on Tuesday, selling HK$6.2 billion ($800 million) in Hong Kong dollars as the local currency repeatedly hit the strong end of its trading range.

It was the second injection this week. Before this intervention, the HKMA had sold a total of $7.7 billion worth of Hong Kong dollars into the market since October 20.

 

Why bet against HKMA?

With a 2930-year history behind the USDHKD peg and HKMA as a powerful actor, does it make sense to speculate in any change to the peg?

Consider that Hong Kong does vastly more trade with China than US. Does it make more sense for Hong Kong to adopt a currency strategy like Asean?

Hong Kong trading partners

Why peg HKD to USD when Hong Kong’s main trading partner is China?

Asean currencies + RMB

Singapore Dollar, Malaysian Ringgit and Thai Baht appreciating against USD in step with RMB

 

What is there to gain?

The Chinese Renminbi was once upon a time pegged to the USD. RMB gained 25% since the peg was removed on 21 July 2005.  Obviously there is something to be gained.

Chinese Renminbi 2004 - 2013

Exchange rates are set free once the shackles of a rate peg are removed

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005. Soh Tiong Hum is a member and regular speaker at Technical Analysts Society Singapore events and has a bi-monthly lunch time event at IG Singapore on forex and stock markets. He is an avid blogger on technical analysis topics; his Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX. Come find Tiong Hum on Google+
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