Pressure ratcheted up on the Hong Kong dollar yesterday amid rising political tensions and further regional currency turmoil.
Hong Kong dollar one-year forwards jumped to 400 basis points above the spot price yesterday from 250 last Friday.
Analysts pointed to concerns about deteriorating relations between Washington and Beijing after a Chinese fighter plane crashed into the South China Sea after a brush with a United States patrol aircraft.
Meanwhile, currencies dropped throughout the region after Japan's survey pointed to the lowest business confidence in nine quarters. The yen dived to a 30-month low of 126.55 to the dollar before closing at 126.4, while the Singapore dollar slid further to close at S$1.8158 after breaching the S$1.80 level against the US dollar on Friday for the first time in three years.
'The [Japanese] survey weakened a lot of Asian currencies and that's putting upward pressure on Hong Kong-dollar forwards,' Bank of America strategist Frank Gong Fangxiong said. 'Another factor seems to be US-China tension. Because of the plane incident, people worry the relationship will get worse and hurt Hong Kong's economic interests.'
Beijing is fast losing export competitiveness as regional currencies hover near three-year lows.