The Hong Kong dollar stayed close to its upper trading band against the US dollar on Monday, while interbank rates extended their fall due to abundant liquidity in the banking system. The local currency traded between 7.7500 and 7.7504 to the US dollar on Monday.
Dealers said the HKMA may step into the market again to keep the local currency within its official trading band amid a persistent inflow of funds into the territory. The HKMA intervened in the foreign exchange market and sold a total of HK$5.425 billion ($700 million) for US dollars during the New York trading sessions on Thursday and Friday to defend the currency peg.
As a result of the HKMA's interventions, the aggregate balance - sum of balances on clearing accounts maintained by the banks with the HKMA - was projected to increase to a record HK$197.423 billion by May 5. The Hong Kong dollar has been boosted by equity-related fund inflows and some safe-haven buying, dealers said.
Hong Kong stocks rallied on Monday, with the blue chip Hang Seng index hitting a 6-1/2 month high, as data from China and the United States suggested the global economy was on the mend. The Hong Kong currency is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85.
Under the currency peg, the HKMA is usually obliged to intervene when the local Hong Kong dollar hits 7.75 or 7.85, to keep the band intact. Local interbank rates mostly fell amid abundant liquidity. The one-month interbank rate was quoted at 0.03/1.00 percent in late afternoon, down from its fixing at a two-and-a half-month low of 0.15286 percent.
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