The Hong Kong dollar hovered near recent lows against the US currency on Thursday, while longer-dated interbank rates tracked US bond yields higher. The currency, allowed to trade between 7.75 and 7.85 to the US dollar, was trading at 7.7581/83, compared with Tuesday's close of 7.7580/82.
Hong Kong financial markets were closed on Wednesday for the Dragon Boat Festival. The domestic currency had weakened to 7.7585 per US dollar on Tuesday afternoon, the lowest point since mid-April, amid weakness in the domestic stock market after China announced new measures to cool its red-hot property market and on strong corporate demand for US dollars.
"I think the local currency will keep a weak tone as sentiment in the stock market is still negative, and a Chinese bank has been repatriating funds after the listing of its IPO in the territory," one trader at a European bank said. The benchmark Hang Seng index fell 1.34 percent on Thursday, and the China Enterprises index of H-shares dropped 2.69 percent.
Dealers said the market was concerned about some newly listed companies converting funds raised in Hong Kong into US dollars to remit back to the mainland for business development.
Shares of Bank of China closed 15 percent in their Hong Kong trading debut on Thursday after raising US $9.7 billion in the world's largest initial public offering (IPO) in six years. The European bank trader expected the Hong Kong dollar to move between 7.7580 and 7.76 in the near term. Hong Kong interbank rates were generally higher.
Short-dated liquidity remained tight as funds that had been tied up for the Bank of China's IPO would not return to the market until Friday, dealers said.
The volatile overnight interbank rate was quoted at 5.25/5.50 percent late on Thursday after hitting an intraday high of 6 percent, compared with Tuesdsay's close at 4.50/4.75 percent.
Longer-dated interbank rates edged up, tracking US bond yields overnight after minutes from the US Federal Reserve's May policy meeting suggested it was still concerned about inflation. That helped reinforce expectations for more US interest rate increases.