HKMA steps in to stall gains in HK dollar

The Hong Kong Monetary Authority spent $1.55 billion yesterday in a series of five interventions to prevent the Hong Kong dollar from strengthening too much.

The action had little effect on the spot rate, however, which continued to hover just above $7.763 against the US dollar during London trading.

Earlier in the day, renewed fund inflows into Hong Kong had sent the local currency strengthening from $7.766 against the US dollar and the Hong Kong dollar forward discount widened to 480 to 460 pips, from 425 to 405 pips on Thursday.

The fact that the HKMA had acted so forcefully even though the strengthening was relatively minor showed it was committed to keeping the Hong Kong dollar on the weaker side of $7.76 against the US dollar, one dealer said.

Yesterday's gains had been due mainly to the general weakness in the US dollar, which was prompting the selling of US assets and a reallocation of funds to other markets, the dealer said, noting that some of that money was going into Hong Kong.

Upbeat views about the economic recovery gaining pace and continued speculation about a revaluation of the yuan has added further upward pressure on the local currency, while a series of successful China-related initial public offerings have recently tied up hundreds of billions of Hong Kong dollars, some of which have come from abroad.

Dealers said the HKMA had bought a total of US$200 million split between two interventions in Hong Kong in the late afternoon and three interventions later in the day in London.

A spokesman confirmed the HKMA had been in the market and said it would continue to inject liquidity when appropriate.

The HKMA has bought US$1.7 billion in the past few months.