Hong Kong yesterday intervened for a second day to defend its currency’s peg to the US dollar after it fell to the weak end of its trading band.
The Hong Kong Monetary Authority (HKMA) bought HK$2.355 billion (US$300 billion) of local dollars yesterday evening, according to the de facto central bank’s page on Bloomberg.
That followed its purchase of HK$2.159 billion during New York trading hours on Tuesday, its first intervention in three months.
The territory’s currency traded at HK$7.8500 as of 5:46pm.
The permitted trading range for Hong Kong dollar is HK$7.75 to HK$7.85 against the US dollar.
Turkey-induced turmoil in emerging markets has spurred risk aversion among investors and strengthened the greenback, putting the Hong Kong dollar under pressure.
Lower rates than the US have also made the local currency an attractive target for shorting.
“Further intervention cannot be ruled out, as the Hong Kong dollar is trading very near HK$7.85 per dollar,” said Frances Cheung (張淑嫻), Singapore-based head of Asia macro strategy at Westpac Banking Corp.
The HKMA has spent about HK$75 billion so far this year protecting the currency system, which has the effect of tightening liquidity in a territory that has enjoyed ultra-low borrowing costs as it imports US monetary policy.
The aggregate balance of the banking system is to drop to HK$104.89 billion today.
The territory has the ability to cope with market volatility and the challenges of capital outflows, HKMA Deputy Chief Executive Howard Lee (李達志) said in an e-mailed statement yesterday.
One-year Hong Kong interbank rates gained by the most in a month after the monetary authority’s action, according to fixing from the Hong Kong Association of Banks.
The Hong Kong dollar is likely to stay weak in the near term, inviting more intervention from the monetary authority, Australia & New Zealand Banking Group foreign-exchange strategist Irene Cheung said.
The territory’s aggregate balance might drop below HK$100 billion in the short run, she added.
Meanwhile, European stocks rose, Asian shares fell and US futures edged lower yesterday, as risk appetite continued to be tested by Turkey-induced turmoil.
Travel and media companies led a broad advance in the Stoxx Europe 600 Index, but miners dropped as copper fell to the lowest in more than a year.
Asian shares slid, with China’s benchmark down for a third day.
Futures on the Dow, NASDAQ and S&P 500 all pointed to a slightly lower open.
In Turkey, the lira swung from a loss to a gain, while a basket of emerging-market currencies drifted lower and developing-nation shares retreated.
“I think we have not seen the worst of it yet,” Academy Securities head of macro strategy Peter Tchir said on Bloomberg Television. “You’ve only started to see a knock-on effect. I think this is truly the eye of the storm and we are going to get another round of emerging-market weakness.”
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