HK dollar forecast to remain weak
The Hong Kong dollar is likely to trade weaker against the US dollar in the near term because of slowing regional growth and the volatile stock market, analysts forecast.
The local currency was quoted at 7.803 to the US dollar in late trade yesterday, weakening from 7.8022 on Thursday but regaining some ground after the market opened at 7.8034.
'Some carry trading re-emerged following a widening differential between short-term US and Hong Kong dollar interest rates,' Reuters quoted dealers as saying, adding that short-term interbank rates dipped and were more than 100 basis points below equivalent US rates, making the carry trade attractive again.
The overnight rate stood at 1.25 per cent yesterday compared with 1.375 per cent on Thursday.
'There's always carry trading in the market, but we did not see much interest rate arbitrage activity,' said Frances Cheung, a fixed-income securities strategist at Standard Chartered Bank.
Ms Cheung said the Hong Kong dollar, which was at 7.79 to the greenback on June 30, had weakened because of slowing trade and economic growth across Asia.
Singapore's economy grew at the slowest pace in five years in the second quarter while mainland exports expanded at a less than expected 17.6 per cent last month.
'The Hong Kong dollar is likely to remain weak as the US dollar may have a brief rebound in the third or fourth quarter,' Ms Cheung said.
Another analyst agreed the local currency would remain weak. But he did not think it would fall to as low as 7.85 to the US dollar, unless the stock market continued to plunge and caused massive money outflows.
Such a situation would prompt the Hong Kong Monetary Authority to intervene, the analyst said.
The authority is committed to keep the local currency trade between HK$7.75 and HK$7.85 to the US dollar.
