The Hong Kong dollar weakened on Wednesday due to arbitrage trade and as money from initial public offerings was converted to US dollars for repatriation to mainland China, traders said. The Hong Kong dollar was trading at 7.8174/75 to the US dollar late on Wednesday, weakening from 7.8169/71 in late morning and 7.8159/60 at Tuesday's close.
The Hong Kong dollar is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. Some funds from heavily oversubscribed subscriptions for new listings China Molybdenum Co and China CITIC Bank Corp were being converted to US dollars ready for repatriation to mainland China, traders said.
"The market has been well bid in the past few days due to IPO money. Some of that money is being converted to US dollars first and then renminbi," a trader said. China Molybdenum and China CITIC Bank are due to begin trading on Thursday and Friday, respectively, freeing up money and boosting local liquidity, traders said.
More funds in the market sent interbank rates lower with the overnight interbank rate quoted at 4.30/4.50 percent in late trade, down from 4.60/4.80 percent in late morning and 4.90/5.10 percent late on Tuesday. Arbitrage traders took advantage of an interest rate differential with the United States by selling Hong Kong dollars for US currency, traders said.
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