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Amid a renewed weakness in the USD, the peg break pressure on the Hong Kong dollar has significantly declined. Since Hong Kong dollar is pegged to the USD, Hong Kong Monetary Authority (HKMA) raises the interest rates along with the U.S. Federal Reserve in order to keep the peg stable. Since December 2015, HKMA has raised interest rates seven times with the last one being in this month. Hong Kong dollar (HKD) is allowed to float between 7.75 and 7.85 per USD and it is important to note that the HKD has been trading at the lower range of the peg around 7.85 per USD since March this year. In an article, here, https://www.econotimes.com/Sniffing-a-peg-break-Series-HKD-might-suffer-temporary-breach-in-peg-1265373 we suggested that the HKD peg might break temporarily with a drop to 7.96 per USD, giving the intense pressure on the peg.
However, last week, for the first time since March, the pressure on the Hong Kong dollar on the lower bound (7.85) eased significantly with HKD strengthening to as high as 7.79 per USD. The exchange rate is currently trading at 7.81 per USD.
Based on our latest calculation, we expect the pressure to ease further and the Hong Kong to strengthen to as high as 7.765 per dollar. However, readers must note that this doesn’t change our ‘peg break’ outlook, as the fundamentals remain broadly unchanged.
