The Hong Kong dollar fell on Friday, tracking losses in other regional currencies and some arbitrage traders continued to take advantage of an interest rate differential with the United States.
The domestic currency fell to as low as 7.7794 to the US dollar before pulling back to 7.7790/92, down from 7.7771 late on Thursday. "The HK dollar has been in range-bound trade recently. Today, the decline was driven by a firmer dollar/yen," said a trader at a local bank. Asian currencies were mostly weaker on Friday as the yen came under pressure after weak consumer price data in July dimmed the prospect of a Bank of Japan interest rate rise.
However, another dealer at a Japanese bank attributed the decline in Hong Kong dollar to arbitrage on the wide interest-rate differential with the United States. Under the territory's linked exchange rate system, the Hong Kong dollar can trade between 7.75 and 7.85 to the US dollar. US interest rates are roughly 1-1.5 percentage points higher than Hong Kong dollar interest rates, and some players exchange HKD for the USD to take advantage of those rate differentials.
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