The Hong Kong dollar ended higher on Thursday but trading was confined to a narrow range, while forward rates softened on profit taking after a recent rally and on the back of easier short-term interbank rates.
The local currency was trading at 7.7557/58 per US dollar, firmer than 7.7563 in late Asian trade on Wednesday.
"There was some profit taking in the forward market after yesterday's run up," one trader said.
Interbank rates and forward rates pushed higher on Wednesday as players prepared funding after local newspapers reported that the Hong Kong Housing Authority's Link REIT US $3 billion IPO could come in mid-November with a trading debut on November 24.
Two-month Hong Kong dollar forwards eased to a premium of 34/39 pips from Wednesday's close of 39/43 pips, while the six-month forwards were quoted around par versus Wednesday's high of a premium at 15 pips.
The discount on one-year forwards widened to 80/60 pips late on Thursday from 65/50 pips in the previous session.
Another dealer at a Japanese bank said a softening in short-term money rates had prompted some selling in longer-dated forwards.
The overnight interbank rate was quoted at 3.50/3.55 percent, down from a morning's high of 3.85 percent.
The one- to three-month rates also retreated slightly from recent highs, but dealers said market liquidity was expected to be tighter in the run-up to upcoming mega IPO issuance.
"Further downside in interbank rates will be limited on expectations that the Fed will continue to raise interest rates in the coming months. Market liquidity is expected to be tighter during the IPO period," said one dealer from a local bank.
The one- and two-month interbank rates eased to 4.24/4.26 percent and 4.25/4.27 percent late on Thursday, softening from Wednesday's close of 4.28/4.30 percent.
Dealers said recent comments from Federal Reserve officials expressing concern on US inflation had supported expectations the US central bank would stick to its tightening campaign.
Hong Kong tends to track US rate moves because of its currency peg to the US dollar. Hong Kong shares fell on Thursday as global financial markets slid on worries about rising interest rates and potential inflation.
The blue chip Hang Seng Index was down 2.12 percent, and the Hang Seng China Enterprise Index fell 2.15 percent.
Market participants are looking ahead to US payroll figures for September, due on Friday, for clues about the health of the US economy and the interest rate outlook.
Economist expect the data will show a loss of 129,000 jobs in September as layoffs in the wake of Hurricane Katrina offset gains in the rest of the country.
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