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Hong Kong’s dollar rises towards the strong half of the band as short sellers bail
- The Hong Kong dollar saw its biggest intraday rise in three years on Monday to 7.8039 per dollar, bringing its gain for November to 0.6 per cent
- That is the closest it’s been to the midpoint of its 7.75 to 7.85 trading band since February
The resurgent Hong Kong dollar has pushed closer to the strong half of its trading band, amid a spike in local funding costs that has upended crowded bets on shorting the currency.
The Hong Kong dollar saw its biggest intraday rise in three years on Monday to 7.8039 per dollar, bringing its gain for November to 0.6 per cent. That is the closest it’s been to the midpoint of its 7.75 to 7.85 trading band since February.
The rally came as the Hong Kong Monetary Authority’s intervention in the foreign-exchange market, which effectively lifted interbank funding costs, rendered a popular strategy of shorting the local dollar unprofitable. The city’s three-month funding costs rose to levels higher than the US equivalent for the first time since February last month.
The Hong Kong dollar had been trading near the weak end of its band for almost half of this year, as investors borrowed the currency cheaply and sold it against the higher-yielding US dollar. Now, the tables have turned, with local authorities’ intervention shrinking the interbank liquidity pool by about 70 per cent in the past six months.
“Shorter-end HKD rates started to pick up more rapidly against US counterparts, the shorter end of the USD/HKD swap curve is also up and even flipped positive up to 2-months, which favours HKD over USD now from a carry perspective,” said Stephen Chiu, chief Asia FX & rates strategist at Bloomberg Intelligence.
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