Hong Kong dollar falls to weakest level since 2007

(SOUTH CHINA MORNING POST)The Hong Kong dollar fell for the fifth day in a row on Wednesday morning to 7.8226, the lowest level since August 2007.

The stock market slump, the weak economy and the US interest rate rise have led to capital outflow, causing the local currency to fall.

The Hong Kong dollar hit 7.8226 against the US dollar early on Wednesday morning before bouncing back slightly to 7.8218 at 9.45am. The local currency has fallen 0.79 per cent over past five trading days.

Jasper Lo Cho-yan, director of Tung Shing Futures, said it would continue to fall.

“There is no sign of bounce back of the Hong Kong dollar,” he said. “Traders believe the capital outflow from the city will continue due to the weak economy and stock market sentiment.

“The Hong Kong dollar may well touch 7.83 later today; then it should have some technical support trading ... it may well hit the weak end of the peg at 7.85 and Hong Kong Monetary Authority will need to intervene then.”

The Hong Kong dollar is now trading at the weakest level since the subprime crisis emerged at the beginning of the global financial crisis. The last time the HKMA had to intervene to keep the Hong Kong dollar from falling beyond the 7.85 weak end of the peg was in December 2005.

The Hong Kong dollar turned stronger from 2009 due to the monetary easing policy in the United States and Europe that led to a US$130 billion inflow to the city that propped up the stock and property markets. Between 2009 and last year the HKMA had to intervene many times to prevent the currency from becoming too strong, but now it has to prevent it from becoming too weak.

Offshore yuan continue to fall on Wednesday morning, trading at 6.5999 at 9.45am, down 0.15 per cent from Tuesday when it was weaker by 0.13 per cent after a strong gain of 0.5 per cent on Monday.

But the offshore yuan has been relatively stable this week after intervention by the People’s Bank of China last week saw it bounce back 1 per cent after depreciating by 1.72 per cent the previous week. The currency is now trading at a level similar to the end of last year.

Onshore yuan was unchanged, trading at 6.5784. The currency gained 0.01 per cent on Tuesday and 0.08 per cent on Monday after a gain of 0.14 per cent last week, following depreciation of 1.56 per cent the previous week.

The spread between onshore and offshore yuan has narrowed to 275 basis points, down from a record 1,400 basis points on January 7.

The PBOC set the yuan mid-price against the US dollar at 6.5578 on Wednesday morning, 18 basis points stronger than on Tuesday, when it set the mid-price 6 basis points weaker.

It set the mid-price against the euro weaker by 140 basis points to 7.1627, and for every 100 yen stronger by 50 basis points at 5.5834. The mid-price against the pound was set 653 basis points stronger at 9.2987.

Traders are allowed to trade up to 2 per cent either side of the mid-price for the day.