The Hong Kong dollar was trapped in a narrow range against the US dollar on Tuesday, while interbank rates eased further amid abundant liquidity in the banking system. The local currency traded between 7.7501 and 7.7507 to the US dollar during the session.
One dealer said the market was quiet and volumes were thin. He said he expected the spot rate to hover in a narrow range of 7.7500 to 7.7510 this week. The Hong Kong currency is pegged at 7.8 to the US dollar but can trade between 7.75 and 7.85.
Local interbank rates softened, extending their recent decline, after aggressive fund injections by the Hong Kong Monetary Authority in the past two weeks, with the aggregate balance in the banking system at a record HK$144.581 billion on Tuesday.
The one-month Hibor was fixed at 0.34500 percent, compared with 0.35143 percent on Monday. The three-month Hibor fell 5 basis points to 0.99714 percent, its lowest level since late January 2005. The discount on Hong Kong dollar forwards narrowed slightly from the previous session, with players adjusting their positions before the Christmas holiday.