The Hong Kong dollar fell on Friday with local interbank rates generally lower, prompting arbitrage traders to chase higher yielding currencies. The local currency was trading at 7.7782/83 to the US dollar, down from Thursday's local close of 7.7771/72.
Under the territory's linked exchange rate system, the Hong Kong dollar can trade between 7.75 and 7.85 to the US dollar. Most interbank rates edged lower on Friday in a market flush with liquidity as some players lent out surplus money after fulfilling their funding requirements for some upcoming IPOs.
Lower US bond yields overnight also helped the longer-dated local interbank rates to soften, dealers said. The one-month interbank rate fell to 4.00/4.05 percent from 4.05/4.10 percent late on Thursday.
The three-month rate quoted at 4.19/4.24 percent. The gap between the three-month US interbank rate and the Hong Kong rate was 116 basis points, widening from 112 basis points on Thursday. The one-year rate fell to 4.40/4.45 percent from 4.44/4.49 percent at the previous close.
Arbitrage traders were selling Hong Kong dollars for US dollars to take advantage of the interest rate differential. One dealer at a local bank expected the Hong Kong dollar to move between 7.7750 and 7.7790 in the near term and said the downside would be capped by expectations for fund inflows for upcoming IPOs.
China Merchants Bank aims to raise about US $2 billion in an IPO in Hong Kong and it will kick off a formal roadshow on Monday, with trading debut set for September 22.
Hong Kong dollar forwards moved in tandem with interbank rates, with the discount on one-year forwards widening to 709/694 pips from 700/790 pips late on Thursday.
Dealers said trading quietened down in the afternoon as investors awaited US jobs data for clues about US monetary policy.
"People refrain from taking aggressive positions ahead of a key economic figures," one trader said. The US non-farm payrolls report for August is due at 1230 GMT and economists polled by Reuters forecast a median 120,000 new jobs were created compared with 113,000 a month earlier.
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