The Hong Kong dollar edged lower on Tuesday, weighed down by interest-rate arbitrage trades. The currency fell as low as 7.7865 against the US dollar before trading back to 7.7855/58, down from Monday's close of 7.7849/50.
"The market is still very liquid and dominated by arbitrage activities," one trader said, adding that the overnight rate softened gradually after lunch. The HK dollar is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85.
The volatile overnight interbank rate was offered at 3.25 percent in late afternoon, easing from 3.70/3.75 percent early in the morning session.
US interbank rates are roughly 1.10-1.40 percentage points higher than Hong Kong dollar rates and some players exchange Hong Kong dollars for the greenback to take advantage of those rate differentials.
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