The Hong Kong dollar eased slightly from the top of its trading band against the US dollar on Wednesday, while most interbank rates extended their decline due to abundant liquidity in the banking system.
The local currency fell to as low as 7.7507 against the US dollar in early morning trade before clawing back to 7.7503/04 late in the afternoon, but it was still softer than late Tuesday trade in Asia.
Some dealers said there had been interest in the US dollar overnight and some follow-through buying orders on Wednesday that might have been related to recent share sales by foreign investors, notably Allianz and American Express had sold shares in Industrial and Commercial Bank of China.
The USD/HKD spot exchange rate hit a high of 7.7520 in New York trade on Tuesday, one dealer added. Dealers expected the spot rate to trade narrowly in the near term, with attention focusing on fund flows and stock market performance. The Hong Kong dollar has been boosted by equity-related fund inflows and some safe-haven buying.
The Hong Kong Monetary Authority (HKMA) was forced to intervene in the foreign-exchange market during April 21-27 to prevent the local currency strengthening beyond its fixed range, injecting a total HK$30.768 billion into the banking system. Hong Kong's Hang Seng index closed 2.76 percent higher on Wednesday, recovering from a two-day slide.
The Hong Kong currency is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. Under the currency peg, the HKMA is usually obliged to intervene when the local Hong Kong dollar hits 7.75 or 7.85, to keep the band intact. Local interbank rates were mostly softer amid abundant liquidity. The one-month Hibor was fixed at 0.19357 percent, its lowest level since February 25.
The three-month Hibor eased to 0.79143 percent from 0.80071 percent on Tuesday. Meanwhile, the discount on Hong Kong dollar forwards widened from the previous session. The US Federal Reserve is widely expected to keep its interest rate unchanged at zero to 0.25 percent when it concludes its two-day meeting on Wednesday.