The lack of HKMA moves has spurred talk the currency will remain robust It took just about one week to all but erase the long-accepted truth that the only way to go for the Hong Kong dollar was down. It may be too early to start calling the shots in the opposite direction but some investors are now starting to position themselves for a slightly stronger currency. The absence of counteracting measures by the Hong Kong Monetary Authority to bring the city's currency back towards its parity level to the US dollar has also fuelled speculation that the Hong Kong dollar will remain strong. The majority of Hong Kong dollar buying was likely to take place in the forwards market, rather than in the spot market, however, and to take advantage of this, investors should sell one-year US dollar-HK dollar forwards, ING Financial Markets said. 'The Hong Kong dollar is set to experience a period of buying pressure as currency investors rebalance their portfolios,' ING chief economist Tim Condon said, projecting a widening of the one-year Hong Kong dollar forward discount to minus 200 pips from minus 80 yesterday. This would imply a spot rate of HK$7.73 to the US dollar in one year. 'Further, we expect risk managers to tighten net foreign exchange positions in light of last week's sudden moves. These adjustments will take time,' Mr Condon said. The upward movement in the currency is partly an effect of general weakness in the US dollar against other Asian currencies, but also an acknowledgement of Hong Kong's improving outlook. After the initial rise to a six-year high against the US dollar on September 22, which was partially counteracted by Hong Kong's de facto central bank, the Hong Kong dollar has hovered at levels of 0.4 per cent to 0.7 per cent stronger than its pegged level to the greenback, with a bias for further strengthening. The discount on one-year forwards, meanwhile, has dropped to minus 80 from plus 42 before the meeting of the Group of Seven industrialised nations - the starting point of the Hong Kong dollar movement. When the Hong Kong dollar jumped to $7.705 on September 22, initially caused by one large trade which in turn triggered a wave of stop-loss selling, the HKMA sold HK$466 million in return for US dollars. This brought the currency back to about $7.75 per greenback, and since then the HKMA has been noticeable only by its absence. 'While it is too early to talk about a flexible exchange-rate policy, we are now seeing a situation with two-way risk and where a devaluation of the Hong Kong dollar is becoming less possible,' an analyst said.