Hong Kong’s dollar is immune to protests, in a blow to short sellers gunning for a rematch of their 1997 takedown of the currency

The Hong Kong dollar hasn’t once reached the weak end of its trading band against the US dollar since the protests began four months ago

The currency rose 0.04 per cent to 7.8426 per US dollar as of 11:31am on Thursday

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An employee counts Hong Kong one-thousand dollar banknotes at the Hang Seng Bank headquarters in Hong Kong on Tuesday, April 16, 2019. Photo: Bloomberg

Published: 4:16pm, 10 Oct 2019Updated: 4:17pm, 10 Oct 2019

One thing Hong Kong policymakers haven’t had to worry about amid the worsening protests is a run on the city’s currency.

The Hong Kong dollar hasn’t once reached the weak end of its trading band against the US dollar since the protests began four months ago. The last time it was in serious danger of touching the weak limit of HK$7.8500 was in May. This is despite a plunge in the city’s stock market, repeated blockades of key parts of the city and a precipitous decline in retail spending. The currency rose 0.04 per cent to 7.8426 per US dollar as of 11:31am on Thursday.

While a lack of substantial capital outflows may be providing some support, a narrowing of the gap between local and US borrowing costs is likely to be having a bigger impact. At the end of February, the Hong Kong one-month interbank rate (known as Hibor) was about 1.6 percentage points below the US Libor equivalent, making it profitable to short the local currency and buy US assets. Now the gap is less than 10 basis points.

“Normal drivers of the currency have been more favourable,” said Mitul Kotecha, a senior emerging markets strategist at Toronto-Dominion Bank. “The Libor-Hibor spread has remained low. Liquidity pressures that have existed in the past and put pressure on the peg are just not there.”

The Hong Kong Monetary Authority (HKMA) spent HK$22.1 billion (US$2.8 billion) defending the currency in March after it fell beyond the weak end of the trading band.