Hong Kong Dollar Gains as Global Stimulus Bets Support Stocks

  • This week's BOJ, Fed meetings in focus after ECB sparks rally
  • Currency sank to lowest level since August 2007 on Wednesday

Hong Kong’s dollar strengthened for a second day as improved prospects for global stimulus spurred a rebound in equities that’s helped quell speculation the currency’s peg will end.

The local dollar rose 0.09 percent to HK$7.79 against the greenback at 12.05 p.m. in Hong Kong, data compiled by Bloomberg show. It jumped 0.28 percent on Friday, the most in four years, after European Central Bank chief Mario Draghi indicated he may bolster economic support as soon as March and a newspaper reported that the Bank of Japan was considering further easing measures.

“What we’re seeing is a relief rally because of the messages from Japan and Europe,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Whether it continues remains to be seen. We’ll have to wait to see what the Bank of Japan does this week,” he said, referring to a Jan. 29 policy meeting.

Hong Kong has been caught up in an exodus of capital from China and the city’s currency sank to HK$7.8295 versus the greenback on Wednesday, the lowest since 2007 and within 0.3 percent of the weak end of its HK$7.75-HK$7.85 trading range. Hong Kong Monetary Authority Chief Executive Norman Chan vowed to defend the peg on Friday and a week ago said he expects the currency to fall to the lower limit of its band.

The linked exchange-rate system requires the HKMA to buy Hong Kong dollars at HK$7.85, purchases that would tighten the supply of the currency and cause local interest rates to climb until they are sufficiently attractive to bring capital flows back into balance.

Hibor Steadies

The Hong Kong Interbank Offered Rate for three-month loans was little changed on Monday at 0.69 percent, the highest since May 2009 and up 30 basis points from where it was at the start of the year. HKMA’s Chan said Friday the increase in Hibor wasn’t enough to impact the city’s property market and current levels are a far cry from the record 16.57 percent seen in 1998, when speculative bets against the peg surged during the Asian financial crisis.

Options prices indicate a 29 percent chance that the Hong Kong dollar will weaken beyond its current trading range this year, down from 47 percent on Jan. 20, according to data compiled by Bloomberg.

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