Hong Kong’s currency is having its longest rally in five years, and that is burning the short-sellers

Hong Kong dollar bears are abandoning bets the currency will weaken, squeezed by the longest streak of gains in more than five years.

The local dollar rose as much as 0.13 per cent to 7.7867 versus the greenback on Monday, taking its six-day gain to about 0.5 per cent – a large move for a pegged exchange rate. Supporting the advance are bets that borrowing costs will remain elevated versus falling US dollar rates, as banks hoard cash for year-end regulatory checks. An easing of trade tensions between China and the US has also helped, with foreign funds snapping up stocks in Hong Kong.

While the former British colony keeps its currency on one of the world’s tightest leashes, the Hong Kong dollar is no stranger to painful stampedes – it surged the most in 15 years in September last year despite no obvious trigger.

Short-sellers are fleeing yet again, with a gauge tracking bearishness in the options market tumbling to a five-week low. Analysts predict the currency will hold in a new trading range after the latest bout of strength.

“The currency is benefiting from the unwinding of short positions and capital inflows into the stock market,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong. Still, “it will fluctuate between 7.78 and 7.82 in the coming three months without touching either side of its trading band because interest rates won’t fall sharply next year and the inflows won’t be sustainable.”