The Hong Kong dollar edged lower against a broadly firmer US currency on Wednesday, while short-dated interbank rates rebounded from morning lows. The domestic currency was trading at 7.8218/19 to the US dollar, down from 7.8210/11 in late Asia trade on Monday. Hong Kong financial markets were closed on Tuesday for the Labour Day holiday.
Some dealers attributed the decline in part to a firmer dollar/yen. The US dollar surged to a two-month high against the yen on Wednesday, extending gains in the wake of data that showed US manufacturing expanded at its fastest pace in almost a year.
The Institute for Supply Management said on Tuesday its index of national factory activity rose to 54.7 in April from 50.9 in March. "The (USD/HKD) spot rate has been hovering at recent highs ... I expect it to be consolidating in a range between 7.8205 and 7.8230 in the near term," said a dealer at a European bank.
The Hong Kong dollar suffered selling pressure as some newly listed companies were converting their proceeds raised from Hong Kong IPOs into US dollars, and arbitrage traders took advantage of the interest rate differential with the United States. The local currency is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. Interbank rates were rangebound. Short-term rates traded lower in the morning, with some major lenders releasing liquidity, before rebounding in the afternoon.
"Short-term rates could keep a firm tone as there are several IPOs in mid-May," one trader said. The volatile overnight rate was quoted at 4.45/4.55 percent late in the day versus a morning low of 3.75 percent. The one-week rate rebounded to 4.10/4.15 percent from 4.03/4.08 percent in late morning, but still lower than Monday's close at 4.20/4.25 percent.
Hong Kong dollar forwards moved along with interbank rates, and with some bidding interest in the afternoon, dealers said. The discount on one-year forwards was trading at 693/683 pips late in the day versus 710/695 pips in late morning and 695/685 pips at Monday's close.
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