Hong Kong reins back local dollar amid capital inflow ahead of US rate cut decision

The Hong Kong Monetary Authority (HKMA) has stepped into the financial market again to rein back the local currency, which had been pushed above its trading band against the US dollar amid the recent influx of capital in the city’s bourse.

In its first market intervention in two years, the city’s de facto central bank bought US$6.005 billion at HK$7.75 and sold HK$46.539 billion worth of local currency, according to the HKMA’s statement on Saturday morning.

That intervention comes less than a week ahead of the US Federal Reserve’s next meeting on Thursday, when it is expected to discuss whether to lower interest rates.

Similar interventions are likely to occur if the US moves to cut interest rates in the coming months, which would prompt more capital inflow to Hong Kong, according to some bankers.

“The recent strength of the Hong Kong dollar is mainly driven by increased demand for the currency related to equity investment activities, which has supported the exchange rate,” an HKMA spokesman said in the statement.

“Additionally, the recent appreciation of several regional currencies against the US dollar has also contributed to the strengthening of the Hong Kong dollar,” he said. “The HKMA will continue to closely monitor the market situation and ensure Hong Kong’s money and foreign exchange markets operate in an orderly manner.”

South China Morning Post