Hong Kong Moves to Stop Local Currency From Gaining Strength Against the U.S. Dollar

The Hong Kong Monetary Authority, the city's de facto central bank, has moved to stop the local currency from gaining strength against the U.S. dollar by buying US$2.07 billion.

On Friday, August 1, the Hong Kong dollar traded at HK$7.7500 as of 11:15 a.m. local time, according to Bloomberg. The currency was linked to the U.S. dollar in 1983 when negotiations between China and the U.K. over the city’s return to Chinese rule spurred capital outflows. It was kept at HK$7.8 per dollar until 2005, when policy makers committed to limiting declines to HK$7.85 and capping gains at HK$7.75.

The HKMA bought the greenback on July 1 for the first time since December 2012, and injected a total US$8.394 billion last month.

The HKMA attributed the strength of the Hong Kong dollar to listed companies' dividend payments, cross-border merger-and-acquisition deals as well as an active market for initial public offerings.

The demand for the Hong Kong dollar comes from commercial activities with June-September being the peak season for dividend distribution.

“In light of the gradual normalization of the U.S. monetary conditions, banks, enterprises and individuals should manage their liquidity and interest rate risks prudently, and avoid excessive borrowing,” the HKMA said in a statement. 

In an interview with Bloomberg, Ho Man Chun, a strategist at Bank of  Communications Co.’s Hong Kong branch, said the Hong Kong dollar "is likely to stay strong as China’s economic recovery continues.”
 

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