The Hong Kong dollar, which fell on Wednesday to a 16-1/2 month low against the US dollar, regained some ground on Thursday on arbitrage profit taking and a flow of funds into the territory. The currency was trading at 7.7911/12, up from Wednesday's close of 7.7929/30. During Wednesday's trade it had fallen as low as 7.7935, its lowest since May 2005.
Under the territory's linked exchange rate system, the Hong Kong dollar can trade between 7.75 and 7.85 to the US dollar. "The USD/HKD spot rate was capped at the 7.7930 level in the past two sessions. It seems the corporate demand for the US dollars is slowing down," said a trader at a European bank, adding a rally in the local stock market has attracted foreign investment.
Hong Kong's benchmark Hang Seng Index traded at levels not seen since July 2000 as property and banking stocks gained on hopes that the US central bank would not raise interest rates any time soon.
The local currency has been under selling pressure as some newly listed Chinese firms have been converting part of their proceeds raised in Hong Kong into US dollars to remit back to the mainland for business development. Another dealer said some short-term players were taking profit after they had sold HK dollars for USD earlier this week on interest rate arbitrage trades.
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