Talking Points – HKMA, USD/HKD, HONG KONG DOLLAR
- A rising US Dollar[1] has placed HKMA’s USD/HKD[2] peg again under pressure
- Hong Kong’s aggregate balance is poised to decline to 2008-lows very soon
- In the event of a de-peg, this outcome risks stoking severe market volatility
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Back in April 2018, fears of monetary tightening from the Hong Kong Monetary Authority amidst a weaker HKD initially triggered a temporary bout of marketwide panic[4]. Chinese stocks declined and the sentiment-linked AustralianandNew Zealand Dollars fell. A couple of days later, the HKMA upheld efforts to maintain their currency peg. USD/HKD pulled back and shares in the Asia/Pacific region rejoiced.
Since then, a stronger US Dollar has been adding pressure to not just its Hong Kong counterpart, but to others as well. Broadly speaking, you can attribute this to persistent efforts from the Fed to raise interest rates amidst a strengthening economy. More recently (as of early August 2018), USD[5] has been further lifted by aggressive risk aversion amidst fears of Turkish contagion[6].
Thanks to the gains in the greenback, attention has been refocused on the HKMA and their currency peg. This entity largely conducts monetary policy by maintaining the stability of the Hong Kong Dollar. Back in 2005, it established a range for USD/HKD to trade in as part of its “three refinements” to help stabilize its currency.
