The Hong Kong dollar struggled on Tuesday with selling amid interest-rate arbitrage trades, but the downside was capped by demand for funds due to the tightness in short-dated money rates.
The domestic currency hit an intraday low of 7.7686 to the US dollar in early morning trade before recovering to 7.7675/77, barely changed from Monday's local close of 7.7674/76.
The Hong Kong dollar has suffered selling pressure in recent sessions after banks here kept interest rate unchanged on Friday as ample liquidity in the market enabled them to forego the latest rate rise by the US Federal Reserve. However, short-dated liquidity tightened on Tuesday in the absence of major lenders.
"Rising interbank rates had prompted some players to unwind their long US dollar arbitrage positions," said a dealer at a European bank.