The Hong Kong dollar touched HK$7.75 versus the greenback in New York trading hours, a move that may trigger intervention by the Hong Kong Monetary Authority.
Hong Kong’s currency is allowed to trade between HK$7.75 and HK$7.85. When it reaches the strong end of the permitted trading range, the HKMA offers to buy U.S. dollars to prevent further appreciation. The linked exchange rate was adopted in 1983 when negotiations between China and the U.K. over the city’s shift to Chinese control spurred capital outflows.
The Federal Reserve unveiled a third round of quantitative easing last month, generating inflows into the city’s assets. The benchmark Hang Seng Index advanced for a seventh straight week and Hong Kong home prices are at record levels. China’s economy expanded 7.4 percent last quarter, matching economists’ estimates, while industrial production, retail sales and fixed-asset investment accelerated in September.
“With an influx of capital on the back of QE3 and an improving China outlook, it is now a live show testing the HKMA’s loyalty and commitment to the peg,” said Raymond Yeung, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd.
The Hong Kong dollar was little changed at HK$7.7506 against the U.S. currency as of 4:05 p.m. local time, according to data compiled by Bloomberg. The spot rate last tested the strong end of its permitted range in December 2009.
The peg’s strong-side “convertibility undertaking” hasn’t been triggered as it’s only the bid price that hit HK$7.75, a Hong Kong Monetary Authority spokeswoman who declined to be identified citing policy, said by telephone today.
“The Hong Kong dollar market has been stable and orderly recently,” the spokeswoman said in a consequent e-mail. “The Hong Kong dollar exchange rate has been trading close to the strong side of the convertibility zone recently due to market demand for the Hong Kong dollar.”