Volatility spiked around USD/HKD – Danske Bank

Senior Analyst at Danske Bank Sverre Holbek assessed the recent price action around HKD.

Key Quotes

“USD/HKD short-term volatility spiked yesterday as the HKD saw a swing: first sliding to a 10- year low and then climbing on liquidity woes afterwards”.

“Concerned by a weakening HKD, the Hong Kong monetary authority announced it would start selling exchange fund bills, which would hit HKD liquidity”.

“Up to HKD40bn would be sold to the banks. While the earlier drop in the HKD could be associated with the North Korea/US standoff and threats, the major reason is financial: the HKD’s abundant supply created a large interest rate gap with the USD”.

“Back in 2005, the city authorities pegged the currency within a 7.75-7.85 corridor against the USD. While the pair has been spiking on financial and political woes, it has always been brought down within the peg. Thus, given the current intentions to drain liquidity, a similar downside move in the USD/HKD is also widely expected”.