The Hong Kong dollar remained at the top of its trading band against the US dollar on Tuesday amid a persistent inflow of funds into the territory and despite a correction in the stock market. "I wouldn't be surprised if the HKMA steps in again later in the day," one dealer said.
The local currency has been repeatedly hitting 7.7500 to the US dollar - its upper trading band - over the past few weeks, prompting the Hong Kong Monetary Authority (HKMA) to pump money into the system in intervention operations. On Friday, the HKMA intervened five times and sold a total of HK$14.338 billion ($1.85 billion) for US dollars during the Asian and New York trading session.
Hong Kong financial markets were closed on Monday for a public holiday. The Hong Kong dollar has been boosted by strong capital inflows, with investors pouring money into the city's asset markets as a weak US dollar makes them attractive and on optimism over China's economic growth and expectations that the Chinese yuan will continue to appreciate. So far this month, the HKMA has injected a total of HK$77.502 billion into the territory's banking system.
The Hong Kong dollar is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. The HKMA is usually obliged to intervene when the local currency hits 7.75 or 7.85. Hong Kong stocks fell on Tuesday, tracking losses on Wall Street. The benchmark Hang Seng Index was down 1.46 percent at the midday break, while the China Enterprise Index of top locally listed mainland Chinese companies dropped 0.46 percent.
Most local interbank rates extended their decline because of abundant liquidity in the banking system following the HKMA's interventions to defend the currency peg. One-month Hibor fell to a two-month low of 0.07250 percent. Three-month Hibor was fixed at 0.17107 percent, a five-year low, and was down from Friday's 0.18000 percent. The aggregate balance - the sum of balances on clearing accounts maintained by banks with the HKMA - was projected to increase to HK$240.252 billion by October 28.