The Hong Kong dollar nudged higher but held within a narrow range on Tuesday and some dealers expect the currency to remain in range trading ahead of a long holiday starting Thursday. The currency was trading at 7.8146/48 against the US dollar, stronger than 7.8156/57 in late Asia trade on Monday.
"There was some profit-taking positions. People who bought dollars yesterday are seen selling them today," said a dealer at a European bank. Another trader said the (USD/HKD) spot rate was likely to stay in a range between 7.8120 and 7.8160 in the near term and lower short-dated interbank rates would attract arbitrage activities.
Since Hong Kong interbank rates are lower than the US rates, arbitrage traders can earn an interest rate spread if they sell Hong Kong dollars for the US currency.
The local currency is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. Hong Kong financial markets will be closed from Thursday to Monday for the Ching Ming and Easter holidays. They will re-open on Tuesday.