Peg defense hits $101b in Oct

Finance | Reuters and Avery Chen 22 Oct 2020

The Hong Kong Monetary Authority has sold around HK$101 billion into the market so far this month to defend the currency peg, with Ant Group's upcoming dual listing driving up demand for the local currency.

The aggregate balance, a measure of interbank liquidity, is set to increase to HK$367.43 billion tomorrow, the highest for more than four and a half years.

The HKMA injected combined HK$5.04 billion into the market yesterday to keep the currency below its upper limit of 7.75 per dollar. Already this year it has sold more Hong Kong dollars than in any year since 2009.

The cost of borrowing Hong Kong dollars also rose. The two-week Hong Kong Interbank Offered Rate climbed for a third straight session yesterday to a three-week high of 0.36387 percent. It has gained 12.4 basis points this week.

Ant plans to list simultaneously in the coming week in what could be the world's largest IPO - spurring demand for Hong Kong dollars in cash to buy the shares. Yet two-week forwards, which touched their dearest since early June yesterday, suggest traders still expect Hong Kong dollar liquidity to tighten in the coming weeks as bankers build out the Ant Group book. "The Hong Kong dollar has been trading at the stronger end of the band now since June, and the Ant IPO is really adding to that pressure," said Steven Dooley at Western Union Business Solutions in Melbourne.

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