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The Hong Kong dollar hovered at the top of its trading band against the US dollar on Tuesday, which might prompt the Hong Kong Monetary Authority (HKMA) to step in again to prevent the local currency from strengthening beyond its fixed range. Dealers expect the local currency to remain strong as hot money is still pouring into the territory, and a weak US dollar is making Hong Kong assets attractive.
The US dollar index, a gauge of its performance against major currencies, was up 0.07 percent at 76.182, but it was still close to a 14-month low hit last Thursday. The HKMA has been intervening in the currency market over the past week as the Hong Kong dollar repeatedly hit 7.7500 to the US dollar - its upper trading band - amid strong capital inflows.
Last week, the HKMA injected a total of HK$28.675 billion into the banking system in frequent interventions. The Hong Kong dollar is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. The HKMA is usually obliged to intervene when the local currency hits 7.75 or 7.85.
Most local interbank rates extended their decline because of abundant liquidity in the banking system. One-month Hibor was fixed at 0.12071 percent, down from Monday's 0.12929 percent. Three-month Hibor fell to 0.21929 percent from 0.22714 percent. The aggregate balance - the sum of balances on clearing accounts maintained by banks with the HKMA - stood at HK$207.37 billion on Tuesday. Hong Kong dollar forwards were little changed in quiet trade.

Copyright Reuters, 2009

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