Hong Kong Buys $6.85 Billion in April to Defend Currency Peg

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Hong Kong’s de facto central bank bought U.S. dollars for the second day in a row to maintain the local currency’s peg, taking this month’s purchases to $6.85 billion.

The Hong Kong Monetary Authority bought $1 billion on Tuesday at HK$7.75 a dollar, the upper limit of a convertibility range that triggers intervention. That came after it accumulated $1.5 billion on Monday. Purchases to date in April are equivalent to more than two-thirds of the $9.72 billion acquired when the currency link was last tested in July and August last year, data compiled by Bloomberg show.

Demand for the city’s dollar, which has been pegged to its U.S. counterpart since 1983, is building after China made it easier for mainland funds to buy Hong Kong stocks. The Hang Seng China Enterprise Index of Chinese shares listed in Hong Kong jumped 18 percent this month, the world’s best performance among benchmark equity gauges tracked by Bloomberg.

The stock inflows have coincided “with an appreciating yuan and a dollar that has been rangebound,” said Tim Condon, the Singapore-based head of Asia research at ING Groep NV. This round of intervention will be “short-lived” and there isn’t any pressure on the peg at the moment, he said.

The Hong Kong dollar was little changed at HK$7.7501 against the greenback as of 5:53 p.m. in the city, according to data compiled by Bloomberg. Twelve-month Hong Kong dollar forwards traded at HK$7.7513, within 0.03 percent of their average level over the past five years.

China’s yuan has advanced 1.1 percent versus the greenback since the end of February as authorities seek to have it included in the International Monetary Fund’s basket of reserve currencies.

Hong Kong pegged its currency to the U.S. dollar when negotiations between China and the U.K. over the city’s return to Chinese rule spurred capital outflows. In 2005, policy makers committed to limiting the currency’s decline to HK$7.85 per dollar and capping gains at HK$7.75.

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