The value of the Hong Kong dollar edged up on Monday after rangebound trade, while the discount on local dollar forwards widened amid some selling interest in the long end. The currency was trading at 7.8133/35 against the US dollar, stronger than 7.8147/49 in late Friday trade in Asia, after shuffling between 7.8116 and 7.8143.
Some dealers expected the USD/HKD spot rate to stay in a range between 7.81 and 7.82 on interest rate arbitrage. The local currency has been under selling pressure as arbitrage traders take advantage of an interest rate differential with the United States by selling Hong Kong dollars for the US currency. The Hong Kong dollar is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85.
"A rebound in the stock market and steady short-term interbank rates prompted some market players to unwind their Hong Kong dollar forwards positions - particularly at the long end," a dealer at a European bank said. Another trader reported some selling interest in the Hong Kong dollar forwards from big trading names.
The discount on one-year forwards widened to 575/565 pips from Friday's close of 505/490 pips. Hong Kong stocks rebounded on Monday following sharp losses in the last session. The blue chip Hang Seng Index closed up 0.52 percent, while the China Enterprise index of H shares gained 0.70 percent.
In the interbank market, the overnight rate was steady and hovering at around 4 percent for most of the day. The one-month rate was quoted at 4.20/4.25 percent late on Monday versus 4.18/4.23 percent in late morning trade and 4.24/4.26 percent at Friday's close. Other interbank rates were lower, tracking movements in Hong Kong dollar forwards, dealers said.
The three-month rate eased to 4.35/4.40 percent from 4.41/4.43 percent late on Friday. The one-year rate declined to 4.67/4.72 percent from Friday's close at 4.80/4.82 percent.