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The Hong Kong dollar moved in a narrow range on Wednesday, as investor sentiment was caught between a broad-based decline of the US dollar and a pullback in the domestic stock market after recent sharp gains. However, some dealers expect the local currency to test its upper limit of 7.75 against the US dollar in the near term as a string of IPOs will fuel demand for the Hong Kong dollar.
The greenback hovered near a one-year low against a basket of currencies. Hong Kong stocks retreated on Wednesday, snapping a four-day winning streak, with the Hang Seng Index losing 0.95 percent and the China Enterprises Index of top mainland companies down 1.4 percent.
The Hong Kong dollar is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. The Hong Kong Monetary Authority (HKMA) is usually obliged to intervene when the Hong Kong dollar hits 7.75 or 7.85. In the interbank market, short-dated rates nudged firmer as some players continued to prepare funding for the upcoming IPOs. Two-week Hibor was fixed at 0.08714 percent, up from Tuesday's 0.06929 percent. One-month Hibor rose to 0.10786 percent from 0.09857 percent.
China's largest drug distributor, Sinopharm Group Co Ltd, plans to raise up to HK$8.73 billion in a Hong Kong IPO and the retail portion of its offering will open on Thursday, with a trading debut set for September 23. The discount on short-dated Hong Kong dollar forwards narrowed, tracking firmer interbank rates, a dealer said. One-month forwards were trading at -17/-16 pips, compared with -19/-18 pips on Tuesday.

Copyright Reuters, 2009

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