HKMA chief says Hong Kong dollar weakening as US rate gap widens
Hong Kong Monetary Authority chief Eddie Yue said the Hong Kong dollar has weakened since mid-June due to a widening interest-rate gap with the US dollar, triggering carry trades. Yue noted it is hard to predict if or when the currency will hit the weak-side convertibility guarantee of 7.85 per US d
Hong Kong Monetary Authority (HKMA) chief Eddie Yue said the Hong Kong dollar has gradually weakened since mid-June, recently hovering between 7.846 and 7.8475 against the US dollar. In an article published on the HKMA's Viewpoint blog on 6 October, Yue attributed the trend to a widening interest-rate gap between the two currencies, which has triggered carry trades, as well as a decline in stock-market-related demand for the Hong Kong dollar, including the fading impact of large fundraising activities, the passing of the quarter-end period and a drop in dividend payouts by listed companies.
Yue noted that the US Federal Reserve raised interest rates in September for the first time in three years, widening the gap between Hong Kong and US rates and putting downward pressure on the Hong Kong dollar. He said some market participants and the public have again become concerned about the currency's trajectory.
According to Yue, whether and when the Hong Kong dollar will trigger the weak-side convertibility guarantee of 7.85 to the US dollar depends on multiple factors that are difficult to predict accurately. These factors include capital-market activity, market appetite for carry trades, local liquidity and the outlook for Federal Reserve monetary policy.
Given the uncertain global economic and financial environment and frequent shifts in capital flows, Yue said the HKMA is closely monitoring financial-market conditions and maintaining Hong Kong's monetary stability through the linked exchange-rate system.
On deposit and lending rates, Yue said banks generally consider factors such as interbank market fund supply and demand, interbank offered rates, current relevant interest-rate levels and their own funding-cost structures when assessing whether and how much to adjust rates. He reminded the public to fully consider and manage interest-rate risks when making property, investment or borrowing decisions.