The Hong Kong dollar extended losses on Friday, weighed down by sustained arbitrage buying of the US dollar and a fall in the local stock market. The domestic currency had weakened as far as 7.8228 against the US dollar before recovering slightly to stand at 7.8221/22, down from 7.8198/00 in late Asia trade on Thursday.
"There has been strong buying interest for the US dollar in recent sessions. Today, the market is following the dollar's strength, a rebound in US bond yields and the stocks fall," said a dealer at a European bank.
The greenback hovered near a three-month high against the yen after data showed a surge in regional US business activity, backing a view that the Federal Reserve will be in no hurry to lower interest rates.
Dealers said weakness in the stock market had also added pressure to the local currency. Hong Kong stocks fell on Friday, tracking weaker Shanghai-listed stocks, amid caution that China could impose more tightening measures.
The blue chip Hang Seng Index ended 0.43 percent lower, while the China Enterprise index of H shares lost 0.8 percent. The local currency has suffered selling pressure on interest rate arbitrage and on talk of some newly listed Chinese firms converting proceeds from Hong Kong IPOs.
The Hong Kong dollar is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. In the interbank market, short-dated rates softened slightly in the afternoon trade and dealers said the rates are expected to fall further next week as funds that have been tied up in the Belle IPO return to the banking sector after the company lists on Wednesday.
China's top womens' shoe retailer Belle International Holdings Ltd raised US $1.1 billion in a Hong Kong IPO. The retail portion of the deal was more than 500 times oversubscribed. The volatile overnight rate eased to 4.20/4.30 percent late in the day after hitting a high of 5.20/5.30 percent said a trader at a local bank.