THE deteriorating investment sentiment in Hong Kong has triggered capital outflow from the territory by foreign investors, dragging the local currency against the US dollar exchange rate down to a level unseen in the past 18 months. The Hong Kong dollar has shown signs of weakening since last week, trading around $7.755 to $7.758 to one US dollar and culminating in a new low last Friday when it touched the $7.7620 level. Although it was still far from the pegged rate of HK$7.80, the level marked a substantial weakening of the local currency, since the rate stayed below $7.73 throughout last year. 'It is an indicator showing that there is capital flowing out of the territory, a phenomenon consistent with the recent stock market performance,' regional treasurer at the Bank of America, Anthony Yuen, said. Moving into the New Year, the stock market has fallen 4.02 per cent to close at 7,528.88 yesterday. The strength of the US dollar has also been bolstered by expectations of a further interest rate increase in the US. 'As the rate is on an upward trend, there will be heightened demand for the US dollar,' the president of the Hong Kong Foreign Exchange Association, Tam Ping-shing, said. He believes the airport projects, which will involve the purchase of imported construction materials and settlement in foreign currencies, have driven the demand for the US dollar high. However, market practitioners said there was no need for panic. 'As long as there is no speculation and the movements are not drastic and sudden, there is no cause for concern,' Mr Tam said.