Hong Kong dollar rebounds but still ends third week in the red

PUBLISHED : Friday, 22 January, 2016, 1:12pm
UPDATED : Monday, 27 June, 2016, 11:51am

Hong Kong dollar strengthened yesterday but still ended third straight week in the red, while offshore yuan continued to fall for the fourth consecutive day.

Local borrowing costs rose with overnight funding cost to a five-year high of 0.44 per cent. Three-month Hong Kong interbank rate, or Hibor, rose to a fresh five-year high at 0.69 per cent, six-month Hibor rose to 0.967 per cent and 12-month rose to 1.349 per cent, according to the morning fixing of the Treasury Markets Association.

The Hong Kong dollar rose to 7.7930 on Friday evening. The currency struggled at the 7.80 level the whole day after trading at 7.8018 in early trades but dropped back to 7.8045 later before bouncing back to the strong side of the currency’s peg to the US dollar.

The local currency started to rebound on Thursday as buyers placed large orders after it hit 7.8294 on Wednesday midnight, its lowest in eight and a half years.

On a weekly basis, the local currency lost 0.01 per cent, marking it the third losing week, with 0.36 per cent and 0.19 per cent lost in the previous two weeks. The Hong Kong dollar has lost 0.55 per cent against the US dollar so far this year, compared with previous years, when the currency would only change about 0.05 per cent.

Worries over capital outflows and mainland and local economies have led to panic selling. This, coupled with speculators betting the currency peg will not last, have caused a sell-off, pushing the currency down by 0.88 per cent in the five trading days to Wednesday.

“Hong Kong dollar has been on an uptrend on Friday. The rise of interest rate in the Hibor market this morning supports the Hong Kong dollar but is bad news for the stock markets,” said Japser Lo Cho-yan, a director of Tung Shing Futures.

He said the yuan has been stable this week after the People’s Bank of China’s intervention last week.

Offshore yuan continued to fall 0.04 per cent yesterday to trade at 6.6039 to the US dollar, which has been falling slightly for four straight days after a strong 0.5 per cent gain on Monday. On a weekly basis, however, it is still up 0.16 per cent after rising 1 per cent last week following the PBOC’s intervention, a turnaround from a depreciation of 1.72 per cent in the first week of this year.

Onshore yuan rose 0.01 per cent to 6.5785 against the US dollar on Friday evening. The currency has strengthened by 0.08 per cent this week after a rise of 0.14 per cent last week.

The spread between onshore and offshore yuan has now narrowed down to 254 basis points, down from a record 1,400 basis points on January 7.