Recently, the Hong Kong dollar's strong momentum has drawn special
attention from the market. The USD/HKD has hit the strong-side
convertibility undertaking of 7.75 several times and hovers around this
level, which led to the Hong Kong Monetary Authority's intervention on
several occasions.To get more news about
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Views attributed this to the fact that mainland China and Hong Kong,
being the first to effectively contain the virus amid global pandemic,
may become "safe havens"that continue to attract international capital
flow. But the most convincing argument is the situation of interest rate
market. Previously, as the Hong Kong dollar interest rate was
significantly lower than the US dollar, traders conducted carry trade by
funding US dollar-denominated assets with Hong Kong dollar. But in
facing narrowing spreads and asset sell-off, carry traders will be
forced to close their positions and in order to do so, they need to buy
Hong Kong dollars in the spot market. It's expected that HKMA will
continue to implement moderate intervention to stabilize the financial
market.
Hong Kong’s linked exchange rate system requires the Hong Kong dollar
to be pegged to the US dollar within a certain range. Since 2005, the
HKMA has adopted a strong-side convertibility undertaking of 7.75 and a
weak-side convertibility undertaking of 7.85; once HKD/USD exchange rate
reach the given range, market intervention will be delivered through
buying or selling US dollar.
The Wall