Hong Kong Dollar Surges Most in 1 1/2 Years, Boosting DevelopersBloomberg News
Stop loss trades exacerbated the move, OCBC’s Li says
Henderson Land leads developer surge as rates seen staying low
The greenback’s slide is proving too much for even the pegged Hong Kong dollar, which is heading for its biggest two-day gain against the U.S. currency since January 2016.
Hong Kong’s dollar jumped 0.07 percent to HK$7.8080 against its U.S. counterpart on Friday as of 5:53 p.m. local time, after strengthening 0.15 percent on Thursday. Expectations that local rates can stay low for longer after the currency’s rebound boosted property developers, with a gauge of the sector’s stocks soaring to the highest intraday level since December 2007.
A gauge of dollar strength dropped for a seventh straight day on Friday to extend a 2 1/2-year low as investors braced for damage that Hurricane Irma may inflict on Florida, while expectations for U.S. rate rises remained muted amid signs of monetary tightening by other major central banks. The Hong Kong dollar’s advance was amplified as the greenback’s slide prompted traders to unwind short positions on the city’s currency.
“The surge in Hong Kong dollar resulted from a quick slide in the dollar,” said Carie Li, an economist at OCBC Wing Hang Bank Ltd. in Hong Kong. “The moves have been sharp because some short Hong Kong dollar stop-loss trades were triggered in the past two days. The rally is not sustainable, as cash supply in Hong Kong is still flush."
The sharp rebound marks an abrupt reversal for the local exchange rate, which depreciated for most of this year as the gap between U.S. and local interest rates widened, making the city’s assets less attractive.
Hong Kong dollar forwards that settle in 12 months traded as strong as HK$7.7353, outside the spot rate’s permitted trading band of HK$7.75-HK$7.85 against the greenback. Trading volume in Hong Kong dollar options soared on Friday, with $4.1 billion of transactions, according to Depository Trust & Clearing Corp. figures. The pair was the fourth most-traded globally, the data show. One-month implied volatility climbed as much as 47 basis points Friday to 1.42 percent, the highest since March 2016.
Hong Kong’s dollar has also been supported by stronger southbound inflows through equity links with the mainland, OCBC’s Li added. Chinese investors’ net buying of Hong Kong stocks reached the highest since May on Thursday, data compiled by Bloomberg show.
Before this week’s rally, the Hong Kong dollar’s continuous decline had fueled concern it would reach HK$7.85, forcing the monetary authority to buy the currency, pushing up rates. Property stocks surged on Friday as expectations for such a scenario have receded, said Sam Turner, head of sales trading at Forsyth Barr Asia Ltd. in Hong Kong.
Henderson Land Development Co. led gains in the Hang Seng Index, soaring 5.8 percent to a record-high close. New World Development Co. and Sun Hung Kai Properties Ltd. both advanced more than 4 percent, as the property gauge jumped 2.3 percent.
— With assistance by Justina Lee, Tian Chen, and Kana Nishizawa