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(Bloomberg) -- Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg.
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The Hong Kong Monetary Authority sold a record HK$60.5 billion ($7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page early on Tuesday in Asia, after it tested the upper end of its trading band. It followed up by offloading another HK$12.8b of local dollars later in the day, in the fourth operation since Friday to cap the currency’s gain.
The rapid intervention signals efforts from the city’s authorities to limit the currency’s moves within its 7.75-7.85 per dollar trading band. Asian currencies are clocking in unprecedented gains on hopes the world’s two largest economies will reach a truce on trade and as doubts over US exceptionalism pummel the dollar.
Heavy sales of the local dollar by the HKMA helped dampen Hong Kong’s borrowing rates that were elevated amid demand for the currency to subscribe shares of Contemporary Amperex Technology Co. Ltd, which is expected to be the city’s biggest listing in years. Lower borrowing costs may also help support Hong Kong’s economy in the face of US tariffs.
The HKMA’s Hong Kong dollar sales “may help buffer potential liquidity tightness at an upcoming IPO, together with other inflows,” said Frances Cheung, head of FX and rates strategy at Oversea-Chinese Banking Corp. She sees the currency peg resulting in a relatively soft Hong Kong dollar compared with peers in times of greenback weakness.
The Hong Kong dollar’s exchange rate has been on a strengthening bias recently, mainly driven by an increase in market carry-trade activities and equity-related demand for Hong Kong dollars, HKMA Chief Executive Eddie Yue told lawmakers. The local financial market has operated in an orderly manner, he said.
Demand for Hong Kong dollars in the capital market has been high of late as Chinese investors poured money in Hong Kong stocks this year. Currency conversions related to dividend payments by Chinese companies listed in Hong Kong added to demand for the local currency.
Before Friday, the last time the HKMA intervened to cap the currency’s gains was in 2020. In comparison, it has stepped into the market in 2022 and 2023 to put a floor under the currency when it threatened to breach the weak end of its trading band.