The Hong Kong dollar slipped on Thursday amid arbitrage trades and on talk of some banks covered short dollar positions. The domestic currency fell as low as 7.8075 to the US dollar before trading back to 7.8063/65, down from 7.8029/30 in late Asia trade on Wednesday.
"We had seen a UK bank covering 'short' positions," a trader said, adding that there was also some commercial buying of the US dollar and in the one-year forwards. The discount on one-year Hong Kong dollar forwards tightened to 830/815 pips from Wednesday's close of 870/855 pips.
Another dealer at a European bank said weakness in the stock market had little impact on the local currency. "It's just a correction after the recent rally," the dealer said.
The benchmark Hang Seng Index halted a three-day record-setting streak to close 0.73 percent lower on Thursday, and the China Enterprises index of H shares lost 1.48 percent. The Hong Kong dollar is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. Interbank rates edged higher, tracking movement in the Hong Kong dollar forwards, dealers said.
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