The Hong Kong dollar hovered at the top of its trading band against the US dollar for most of Thursday, which might prompt the Hong Kong Monetary Authority (HKMA) to step in again to prevent the local currency from strengthening beyond its fixed range, amid continuous funds inflows to the territory.
Investors betting that Asia, led by China, would recover ahead of the US and Europe are parking their funds in the region, a dealer at a European bank said. Until they see an improvement in the economies of the US and Europe, investors will continue to keep their funds in Asia, he said.
Hong Kong exports in May dropped by 14.5 percent from a year earlier, still very weak but much less than expected and the smallest decline since December, a further indication that the trade sector may have bottomed out. The HKMA intervened in the foreign exchange market during New York trading hours on Wednesday and sold HK$3.875 billion ($500 million) for US dollars to keep the Hong Kong dollar within its official trading band. HKMA chief Joseph Yam on Thursday told reporters he noted an inflow of funds to Hong Kong's stock market, attracted by IPOs.
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 Hong Kong dollar hits 7.75 or 7.85, to keep the band intact. Hong Kong's Hang Seng Index closed 2.14 percent higher on Thursday.
Local interbank rates inched higher on a liquidity squeeze due to IPO factors as well as some demand for funds ahead of the end of the first half of the year, dealers said. Three-month Hibor rose to 0.35714 percent from Wednesday's 0.34500 percent. The discount on Hong Kong dollar forwards narrowed slightly from the previous session, tracking movement in interbank rates.