Across The Border | Hong Kong dollar set for biggest monthly advance in 18 months as central bank drains funds
In a pre-emptive move ahead of expected US rate rise, analysts are betting Hong Kong Monetary Authority to continue withdrawing liquidity from the banking system to ensure higher HK dollar interest rates
The Hong Kong dollar is heading for its biggest monthly gain in 18 months, fuelled by mounting expectations over tighter liquidity in the city.
The currency was little changed at HK$7.8094 per US dollar on Thursday, and is poised to gain 0.2 per cent this month, the biggest advance since March 2016.
Federal Reserve Chairman Janet Yellen’s comments on Tuesday that the US needed to continue gradual rate increases despite broad uncertainty about the path of inflation, triggered expectations of a US rate increase in December.
In a pre-emptive move ahead of that expected rise, analysts are betting the Hong Kong Monetary Authority (HKMA) will continue withdrawing liquidity from the city’s banking system to ensure higher Hong Kong dollar interest rates, preventing their gap with US rates from widening further, and to smooth out this year’s depreciation in the local currency.
The HKMA knows if the Hong Kong-US rate gap widens further after Yellen’s comments, the consequence will be really serious. The HKMA must raise make Hong Kong rates, in line with the US
“The HKMA knows if the Hong Kong-US rate gap widens further after Yellen’s comments, the consequences will be really serious,” said Jasper Lo Cho-yan, senior vice-president at iBest Finance. “The HKMA must raise Hong Kong rates, in line with the US.”