The Hong Kong Monetary Authority accelerated its sales of US dollars to the market yesterday as speculation of rising United States interest rates prompts banks to shift into the US dollar.
The HKMA sold about US$590 million in return for HK$4.6 billion in three transactions, after having bought HK$1.17 billion worth of Hong Kong dollars during Monday's session.
The sales came as the Hong Kong dollar repeatedly hit HK$7.80, the level at which it is pegged to the US dollar and where the HKMA is obliged to buy the local currency to protect its value.
Dealers said local banks, which have been short US dollars and long Hong Kong dollars over the past few months, were starting to reverse their positions amid anticipation the US Federal Reserve would raise its key Federal Funds rate by up to 100 basis points this year.
The first 25 basis point rise is widely expected to follow the June 30 Fed policy meeting.
'Banks are no longer comfortable with their position because it is already costing them negative carry and when US rates start to head higher that negative carry could increase [as Hong Kong has room not to follow suit immediately],' one dealer said.
The US Fed Funds rate is at a 46-year low of 1 per cent, while the Hong Kong overnight interbank rate is close to zero, at 0.002 per cent yesterday.
