Repeated tests of the Hong Kong dollar’s lower convertibility band of 7.75 to the US dollar in recent weeks have forced intervention to defend the peg for the first time since 2012. The Hong Kong Monetary Authority’s favoured explanation for the local dollar’s strength is corporate demand. The more likely driver, according to BNP Paribas analyst Mole Hau, is hot money that is fleeing the mainland. BNP’s proprietary financial and monetary conditions index for the mainland has moved in lock-step with the Hong Kong dollar for the past two years. The latest mainland reserves data suggests US$80 billion exited the country in the second quarter. A substantial chunk of that has clearly been converted into Hong Kong dollars.