The Hong Kong dollar rose on Thursday as the US dollar suffered selling across Asia after tame inflation data reduced expectations for a US interest rate rise next month. "Some people are trying to reduce their long Hong Kong dollar positions because of the weak US dollar," a trader said.
Hong Kong tends to track US interest rate moves because of its currency peg to the US dollar and one-year Hong Kong interbank rates fell on reduced expectations for a rate rise.
Short-dated interbank rates rose, however, on the view that spates of IPOs next month will spur keen demand for funds in the next few weeks. Expectations for fund inflows were another factor driving the Hong Kong dollar higher. It was trading at 7.7758/59 to the US dollar late on Thursday, up from 7.7778/80 late on Wednesday but off a day's high of 7.7754. Under the territory's linked exchange rate system, the Hong Kong dollar can trade between 7.75 and 7.85 to the US dollar.
A local newspaper on Wednesday, citing market sources, said 10 companies were preparing to list in September and would raise a combined HK$30 billion (US $3.8 billion). Overnight interbank rates finished the day at 3.65/3.85 percent, up from 3.60/3.80 percent late on Wednesday but down from 3.80/3.85 percent in mid-morning.
One-year interbank rates fell to 4.50/4.58 percent by late trade from 4.61/4.68 percent late on Wednesday. Rate rise expectations receded after the United States said on Wednesday that core US consumer prices rose 0.2 percent in July, less than a forecast 0.3 percent increase, and following on the heels of weaker-than-expected producer price data on Tuesday.
The discount on one-year Hong Kong dollar forwards was quoted at 675/660 pips in late trade, narrowing from 680/670 pips late on Wednesday but widening from 654/639 pips in mid-morning.