Hong Kong reins back local dollar amid hot money influx ahead of city’s blockbuster IPOs, allaying concerns of capital flight

The Hong Kong Monetary Authority (HKMA) has stepped into the currency market eight times this year, selling HK$25.58 billion of the local dollar to rein back its strength, as hot money continues to pour into the city

In today’s interventions, the HKMA sold a combined HK$4.88 billion of the local currency to bring the exchange rate back below 7.7500 per US dollar

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An employee counts US$100 banknotes at the Hang Seng Bank’s headquarters in Hong Kong on Tuesday, April 16, 2019. Photo: Bloomberg

Published: 9:10am, 5 Jun 2020Updated: 6:50pm, 6 Jun 2020

Hong Kong’s monetary authority stepped into the financial market twice on Friday to rein back the local currency, which had been pushed over the top end of its trading band against the US dollar by the influx of so-called hot money ahead of several blockbuster initial public offerings on the local stock exchange.

In the second intervention, the city’s de facto central bank sold HK$3.88 billion worth of Hong Kong dollars, buying the same amount in the US currency to bring the exchange rate below 7.75000, according to a statement by the Hong Kong Monetary Authority (HKMA). Earlier in the morning it had used nearly HK$1 billion on buying US dollars.

That raised the HKMA’s aggregated balance, which shows the liquidity of the Hong Kong banking sector, to HK$99.64 billion (US$12.85 billion).

This marks the eighth intervention this year, as the HKMA spent HK$20.7 billion in the currency market in April alone while global funds poured into Hong Kong to take advantage of the gap between the local cost of money and US interest rate. The practice, known as the carry trade, enables currency traders to profit by parking their funds in Hong Kong.

The continuous inflow of hot money flies in the face of the talk of capital flight from one of Asia’s largest financial centres, after US President Donald Trump last week announced that he would strip Hong Kong of its special trading status in retaliation against China’s national security law for the city. The plan, devoid of details and timing, nonetheless raised fears among some economists that Hong Kong may lose its competitive edge, causing funds to flee.

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