The Hong Kong dollar pulled back from offshore highs on Tuesday, while interbank rates maintained a steady to soft tone amid flush liquidity. The currency was trading at 7.7828/29 against the US dollar at 0427 GMT, retreating from a high of 7.7802 hit in New York trade, but firmer than Monday's local close of 7.7854/57.
The Hong Kong dollar is linked to the US dollar and is allowed to trade between 7.75 and 7.85 to the US dollar. Dealers said there was some US dollars selling for Hong Kong dollars during London and New York trade overnight and they believed the selling was related to the settlement of Industrial & Commercial Bank of China's IPO subscription.
ICBC, which is set to raise US $21.9 billion in the world's largest initial public offering, has attracted institutional orders worth about US $350 billion for the Hong Kong portion of its offering. The shares will begin trading on Friday.
Dealers expect the Hong Kong dollar to remain in range trading amid fund flows for the ICBC issue and sustained corporate US dollar demand. One dealer at a European bank said the USD/HKD spot rate was likely to move between 7.7800 and 7.7850 in the near term.
Interbank rates softened for a third day and a dealer from a Chinese bank said players were eager to lend out one-week to one-month money on expectations that some funds, which had been tied up in ICBC's IPO, would gradually return to the market after the allocation of shares.
The one- and two-week interbank rates were quoted at 3.93/3.98 percent versus Monday's close at 3.95/4.00 percent. The one-month rate fell to 3.98/4.03 percent from 4.02/4.04 percent late on Monday.
Hong Kong dollar forwards moved in line with interbank rates, with the discount on one-year forwards widening to 810/790 pips from the previous day's close of 790/770.