The Hong Kong dollar strengthened on Wednesday as some dealers unwound long US dollar positions on the back of a rise in short-term interbank rates amid a steady stream of equity initial public offerings.
The domestic currency was trading at 7.8139/40 to the US dollar at 1014 GMT, having touched a high of 7.8125, stronger than 7.8192/96 in late Monday trade in Asia.
Hong Kong financial markets were closed on Tuesday for the Dragon Boat Festival public holiday. "Short-dated money squeezed higher because of the (upcoming) IPOs and that prompted some players to unwind interest rate arbitrage positions," one dealer said.
Another trader at a European bank said the Hong Kong dollar gaining ground might also be related to some investment fund inflows to the stock market. The blue chip Hang Seng Index ended 0.47 percent higher on Wednesday, while the China Enterprise index of H shares rose 0.33 percent. For a detailed stocks report.
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, the one-week to three-month rates spiked higher on IPO-related fund demand. The one-week rate rose to 4.55/4.60 percent from 4.30/4.35 percent late on Monday. The one-month rate was quoted at 4.58/4.63 percent, up from 4.43/4.48 percent.