Speculators bet on peg to change but HKMA insist the link to go on

The Hong Kong dollar dropped to its weakest level in eight years on Wednesday, while the 12-month forward contract fell below its lower boundary, indicating some traders are betting the currency link may not last.

The Hong Kong dollar fell for the fifth day in a row Wednesday, touching an intraday low of 7.8241 per US dollar, the lowest level since August 2007, before rebounding to at 7.8225 late afternoon, weaker by 0.05 per cent from Tuesday’s close, and 0.81 per cent down over the last five trading days. The interbank interest rate for 3-month Hibor rose to five year high of 0.55 per cent.

The 12-month forward contract for the Hong Kong dollar fell to 7.89, which is beyond the weak end of the peg at 7.85, and its weakest level since 1999.

“The forward market is so weak it shows some traders expect the peg may be changed. However, this would not happen easily, as the Hong Kong Monetary Authority would intervene to defend the peg,” said Jasper Lo Cho-yan, director of Tung Shing Futures.

“There is no sign of a bounce in the Hong Kong dollar. Traders believe capital outflows from the city will continue due to the weak economy and stock market sentiment.”

The HKMA said it is committed to keeping the peg unchanged.

“Hong Kong is a free market and people are trading for different reasons for hedging or speculative purposes. There were also some investors who tried to speculate that the peg may be changed. The HKMA reiterates its commitment to the peg.”