Currency scare: Hong Kong on alert as local currency falls for fourth straight day
For the first time in a decade, the Hong Kong Monetary Authority may need to defend the local currency from weakening too much as the Hong Kong dollar has now fallen four days in a row, hitting a fresh four-year low of 7.8090 to the US dollar.
The offshore yuan also weakened by 0.23 per cent on Tuesday to 6.5973 after Beijing said the country’s gross domestic product grew 6.9 per cent last year, the weakest in 25 years.
The Hong Kong dollar hit 7.8090 Tuesday afternoon before bouncing back to 7.8068 later, down 0.12 per cent. It has now dropped a total of 0.61 per cent over the past four trading days.
“There is strong selling pressure on both Hong Kong dollar and yuan these days. Besides capital outflow, some traders may be trying to sell the dollar down amid the poor market sentiment,” said Jasper Lo Cho-yan, director of Tung Shing Futures. “It may well go down to 7.85, which will trigger HKMA intervention.”
HKMA chief executive Norman Chan Tak-lam said on Monday that about US$130 billion that has flowed into the city over the past years is starting to leave following the US interest rate rise in December and the stock market slump.
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He said the capital outflow would continue and interest rates rise accordingly but vowed to defend the peg and said the HKMA would intervene when the currency touches the weak end of the peg at 7.85. The last time that happened was 2005.