HKMA sells Hong Kong Dollar in $2.1B currency intervention
Currency intervention to weaken Hong Kong Dollar
We wondered if the Hong Hong Monetary Authority will intervene if the USDHKD fell below 7.75 and it did. HKMA’s currency intervention came at the crucial 7.75 limit of Hong Kong Dollar’s peg to the USD.
Jul 02 (Reuters) – Hong Kong intervened to defend its currency peg for the first time in nearly two years as investor expectations for a rebound in Chinese equities boosted the local dollar.
The Hong Kong Monetary Authority (HKMA) bought a total of $2.1 billion in the past two days to restrain gains in the local currency, which is pegged to the U.S. dollar. That was the first time it did so since the fourth quarter of 2012, according to Thomson Reuters data.
04 Jul (CNBC) – It was the first official intervention since the fourth quarter of 2012.
“We think it was the first in what will prove to be another episode of concerted defense of the peg,” said Tim Condon, head of research for Asia at ING Financial Markets.
Curiously analysts were quick to point out that the rally in the Hong Kong was due to optimism in China rather than speculation on USD weakness. Perhaps this was to avoid the ire of HKMA Chief Executive Norman Chan who warned that:
The HKMA’s ability to create Hong Kong dollars is limitless. So people need not worry about any shortage of Hong Kong dollars required by the HKMA to keep up its US dollar-buying action.
More moves to come based on price action
At least one of these spikes was caused by the HKMA intervention but what about the other two?
This daily chart shows the buying pressure on the Hong Kong Dollar.
This chart shows why the CNBC headline predicts more. The market is clearly not deterred by HKMA’s action. So we can foresee more intervention by HKMA until conditions encouraging Hong Kong Dollar buying goes away or one side of this price action is totally defeated.