The Hong Kong dollar fell against the US dollar on Thursday, undermined by diminishing demand for funds with the closing of a hotly sought-after share offering. The domestic currency was trading at 7.8158/60 to the US dollar, weaker than 7.8125/28 in late Wednesday trade in Asia.
Dealers attributed the Hong Kong dollar's weakness to interest rate arbitrage on the back of softer short-term interbank rates. The local currency is pegged at 7.80 to the US dollar, but can trade between 7.75 and 7.85.
Most interbank rates retreated from recent highs and the discount on Hong Kong dollar forwards widened as pressure on funds demand lessened after the closing of subscriptions for Fosun International's IPO.
China's largest privately owned conglomerate, Fosun International Ltd is expected to raise about US $1.48 billion in a Hong Kong IPO. It had attracted more than US $50 billion worth of orders, which is over 45 times the shares initially earmarked folobal institutional investors. The share offer to Hong Kong retail investors closed at noon on Thursday. The stock is set for a trading debut on July 16.
In the interbank market, the volatile overnight rate hit a high of 5.10 percent before settling at 3.80/4.00 percent. The one-week rate fell to 4.65/4.75 percent from 5.00/5.10 percent late on Wednesday. The one-month rate softened to 4.48/4.53 percent from 4.58/4.63 percent.
As a result, the discount on one-month Hong Kong dollar forwards widened to 59/56 pips from Wednesday's close of 50/47 pips. The discount on one-year forwards was trading at 540/525 pips versus 535/520 pips. "There was some position adjustments in the forward market, mainly on the short-end, on expectations that market liquidity will improve after recent IPOs," said a dealer at a European bank. He said the USD/HKD spot rate could head towards 7.8180 after it had broken the key support 7.8150.