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TALKING POINTS – AUSSIE & NZ DOLLARS, HKMA, USD/HKD, CHINA STOCKS

  • HKMA steps up intervention efforts, USD/HKD[1] spikes to 1-month high
  • Aussie and NZ Dollars rise with China stocks, endorsing HK tightening
  • Japanese Yen[2] falls as stocks rise in APAC trade, curbing anti-risk flows

The Australian and New Zealand Dollars soared alongside Chinese stock benchmarks as the Hong Kong Monetary Authority (HKMA) stepped up efforts to arrest capital flight. The de-facto central bank bought an additional HK$17.6 billion of the local currency today, bringing total uptake to HK$51.3 billion since last week. That will drain close to 30 percent of cash from the banking system by Friday.

The bellwether three-month Hibor lending rate jumped to 1.3366 percent, the highest since December 2008, while the Hong Kong Dollar spiked to a one-month high. Reassuring comments from HKMA Deputy CEO Howard Lee helped drive the move. He said HKD purchases have been “smooth and sound”, predicting that interbank lending rates will continue to rise. Lee added that large-scale HKD short-selling isn’t seen.

Earlier, HKMA tightening pushed the Aussie and Kiwi Dollars lower alongside Chinese shares[3]. Today’s polar opposite response may reflect the newfound potency of the Authority’s efforts. USD/HKD tellingly hugged the upper bound of the policy range despite HKMA intervention previously, beckoning a more forceful response. This time, the markets’ willingness to follow officials’ lead may have stocked confidence in their ability to manage the situation and cooled fears of further escalation.

AUD[4] had been down for much of the early Asia Pacific session, suffering as local employment data fell short of expectations[5]. That

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