HKD Suffers First Central Bank Intervention in 2 Years

This week has seen Hong Kong’s first foreign exchange intervention in almost two years to curb currency strength and analysts expect more of the same in the weeks ahead.
That’s because renewed optimism towards China’s equity market and strong flows into Hong Kong’s bond and stock markets should keep upward pressure on the Hong Kong dollar, they believe.

The Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, said on Wednesday it bought $2.1 billion over two days to contain gains in the local currency.

It was the first official intervention since the fourth quarter of 2012.

“We think it was the first in what will prove to be another episode of concerted defense of the peg,” said Tim Condon, head of research for Asia at ING Financial Markets.

“The intervention is noteworthy for what it says about the global investment climate. We attribute it principally to improved sentiment toward China having stoked risk appetites,” he said in a note on Friday.

The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85. Under the currency peg, which has been in place since 1983, the HKMA is obliged to intervene when the Hong Kong dollar hits 7.75 or 7.85 to maintain the band.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza