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The View | Despite weak Hong Kong dollar, city’s assets remain strong, thanks to HKMA intervention
Nigel Green says the factors pushing the Hong Kong dollar down to the low end of the trading band of its US dollar peg may cool market sentiment for now, but the longer-term prospects are sound
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Global financial markets watched the Hong Kong dollar fall to a 35-year low last Thursday, slumping to HK$7.85 against the US dollar, to which it is pegged.
Nervous investors looked on, waiting to see if the Hong Kong Monetary Authority would step in. It did; the city’s de facto central bank used its reserves to prop up the currency, thereby reducing its aggregate balance to HK$179 billion. It was the first time the Hong Kong dollar has triggered the weak side of the trading band since the band was set in 2005.
The ongoing downside pressure, due largely to the widening chasm between the interest rates of Hong Kong and US dollars, is something international and domestic investors have been keeping a close eye on in recent months.
Indeed, the situation has reignited the debate on whether the Hong Kong dollar should remain pegged to the US dollar. With both sides of the argument once again airing their standpoints, it was an issue that compelled the head of the International Monetary Fund, Christine Lagarde, to speak out last week. The pegging mechanism “is consistent with the fundamentals of the economy”, she said. “We certainly don’t see in the near future the pegging of the Hong Kong dollar to another currency, other than the US dollar.”
Despite all the brouhaha, and thanks to the HKMA’s buying spree, investors should now be reassured that the currency peg of HK$7.80 to US$1 remains a cornerstone of the city’s economic framework.
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