HSBC Says Hong Kong Dollar to Yuan Exchange Rose at Record Pace in March

Hong Kong investors with HSBC Holdings Plc converted local dollars into yuan at a record pace in March, anticipating China will allow its currency to strengthen for the first time in almost two years.

The exchange of Hong Kong dollars climbed more than 90 percent from a month earlier, the most since HSBC started offering yuan transactions in the city in 2004, Francesca McDonagh, head of personal financial services at Europe’s biggest bank, said in an interview yesterday.

“There is an increasing appetite amongst our retail consumers for renminbi,” said McDonagh. “Some of our customers are looking forward to appreciation.”

President Barack Obama, pressed by the U.S. Senate, is urging China to allow a more flexible policy in the yuan, which has been pegged to the dollar since 2008. The International Monetary Fund yesterday joined international calls for gains in the currency to resume ahead of today’s meeting with finance minister from the Group of 20 nations.

A U.S. Treasury Department official said yesterday that the G-20 discussions in Washington will include currencies and financial markets. Asia’s strengthening expansion, fueled by consumer spending and investment in China and India, mean policy makers in several countries should embrace stronger exchange rates, the IMF said.

Yuan deposits in Hong Kong rose 12 billion yuan ($1.8 billion) in the past year to stand at 66 billion yuan as of the end of February, according to data compiled by Bloomberg.

Options Prices

The Hong Kong dollar has been pegged to its U.S. counterpart since October 1983. A trading band was introduced in May 2005, allowing the currency to rise or fall 5 Hong Kong cents either side of HK$7.80 per dollar.

Options, which give buyers the right to buy or sell a security at a set price over a given period, show traders are sticking with bets that Hong Kong’s central bank will keep its 26-year-old peg, while contracts for the yuan point to gains in China’s exchange rate.

One-month implied volatility for the Hong Kong dollar shows traders expect swings in the currency of 0.34 percent, compared with 0.35 percent on Dec. 31, according to Bloomberg data.

The equivalent volatility gauge for the yuan was 3.1 percent, compared with 0.55 percent at the end of last year. Twelve-month non-deliverable forwards reflect bets the yuan will strengthen 3.2 percent from the spot rate of 6.8262.

To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net

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