Hong Kong dollar suffers biggest weekly drop in 12 years amid capital outflow concerns
Experts warn local currency is likely to be squeezed by additional capital flight in months ahead
The Hong Kong dollar ended Friday having suffered its worst week of declines in 12 years as investors yanked massive sums out of Hong Kong stocks, while analysts believe further outflows will add to borrowing costs, further weighing on the local economy.
The Hong Kong dollar traded at 7.7930 against the US dollar at 8pm on Friday, bringing its loss for the last two trading sessions of the week to 0.4 per cent. For the full week, the Hong Kong dollar ended down 0.36 per cent, the most since October 2003.
“The US interest rate hiking cycle has begun which will lead to capital outflow from the Hong Kong market. It is natural that the Hong Kong dollar would be weaker,” Tsang said in Hong Kong.
Tsang also said the central government had responded favourably to the city’s intention to join the China-led Asian Infrastructure Investment Bank, adding that the bank’s board of governors would discuss its future plans during the inaugural gatherings on Saturday and Sunday.
“Since there was a lot of capital flow in the Hong Kong market earlier, it is natural this money would leave the market at some stage. The government will closely monitor the market situation,” Tsang said.
Jasper Lo, director of Tung Shing Futures, said the capital outflow adds us to a liquidity shortfall and may prompt banks to increase their interest rate faster than expected. Local banks had been expected to track the US Fed rate hike around midyear, but the thinking is that these hikes may be brought forward.