The Hong Kong dollar ended little changed on Monday after moving in a narrow range amid a rally in the stock market and interest rate arbitrage activities. The currency was trading at 7.8192/96 against the US dollar, barely changed from 7.8195/96 in late Friday trade in Asia, after shuffling between 7.8177 and 7.8195.
Hong Kong stocks climbed on Monday, tracking gains in regional markets after tame US consumer price data soothed worries about inflation in the world's largest economy. The blue chip Hang Seng Index ended 2.69 percent higher, while the China Enterprises index of H shares rose 3.69 percent.
"Interbank rates are likely to keep a soft tone as investment funds flow into the stock market, and that will continue to encourage carry trades," said a dealer at a local bank. The volatile overnight interbank rate fell to 2.90/3.00 percent as some players lent out surplus funds in the late afternoon, down from 3.78/3.83 early in the morning session.
Arbitrage traders will take advantage of an interest rate differential with the United States by selling Hong Kong dollars for the US currency. The local currency is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85.
In the Hong Kong dollar forwards market, the discount on one-year contract was quoted at 600/585 pips late in the day versus 615/600 pips in late morning and Friday's close of 565/550 pips. Hong Kong financial markets will be closed on Tuesday for the Dragon Boat Festival. They will reopen on Wednesday.
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