Update | Hong Kong Monetary Authority forced to act twice to defend currency peg as investors switch out of devalued yuan
HK dollar hits the high end of its range, triggering intervention by city’s quasi central bank
The Hong Kong Monetary Authority had to intervene in the money market twice on Tuesday, spending HK$15.5 billion, to keep the Hong Kong dollar from breaching its upper limit as investors rush to convert yuan deposits into the local currency.
Investors switching out of the yuan since its devaluation last month have pushed up the Hong Kong dollar, which hit the high end of its peg to the US dollar at HK$7.75 on Tuesday, triggering the city’s quasi central bank to spend some of its HK$3.27 trillion Exchange Fund to defend the peg for the first time in four months.
“Some market participants believe there is a capital inflow driven in part by conversions of offshore yuan into the Hong Kong dollar,” a HKMA spokeswoman told the South China Morning Post.
“Given the volatility in the external environment and the uncertain outlook, the market has become less liquid. As the [Hong Kong] dollar exchange rate continued to strengthen and touched the strong-side convertibility undertaking rate, the HKMA purchased US dollars from banks to maintain the Hong Kong dollar exchange rate stability.”
In two separate interventions, the HKMA bought US$1.2 billion and US$800 million of US dollars by selling HK$9.3 billion and HK$6.2 billion of Hong Kong dollars to weaken the local currency.
The last time the HKMA acted to protect the peg was in April, when it intervened 12 times during a stock market rally from April 9 to 27 in order to weaken the Hong Kong dollar, spending HK$71.49 billion. Hot money flowing into the stock market then saw average daily market turnover triple to HK$200 billion.
“We will monitor market developments closely and maintain the stability of the Hong Kong dollar in accordance with the currency board arrangements,” the spokeswoman said.