The Hong Kong dollar softened on Friday, while the discount on local dollar forwards tightened on the back of firmer interbank rates. The domestic currency hit a low of 7.7775 to the US dollar in the early morning session before pulling back to 7.7761/63, but still softer than Thursday's local close of 7.7758/59.
Dealers said the decline in the local share market had little impact on the Hong Kong dollar. Hong Kong shares tumbled on Friday, triggered by looming geopolitical risks in the Middle East, record oil prices and the prospect of an interest rate increase by China's central bank.
The benchmark Hang Seng index fell 1.04 percent, and the China Enterprises index of H-shares dropped 1.2 percent. "There were some short-covering positions in the Hong Kong dollar forwards market after recent a sell-off," said a dealer at a European bank.
Another trader said interbank rates were generally firmer as major lenders were not eager to lend out money. The discount on one-year forwards was quoted at 550/540 pips late on Friday, versus 530/520 pips earlier in the day and narrowing from the previous day's close of 590/560 pips.
In the interbank market, the volatile overnight rate hit an intrady high of 3.90 percent before ending at 3.60/3.65 percent, compared with 3.30/3.50 percent late on Thursday.
The one-week rate was quoted at 3.85/3.90 percent, firmer than Thursday's close at 3.80/3.85 percent. The one-month rate rose 5 basis points to 4.00/4.05 percent from 3.95/4.00 percent.