The Hong Kong dollar has sunk by more than a decade and speculation mounted on the options market of the city 32 currency peg will end as investors lose confidence in the Chinese assets
local dollar fell as much as 0.28 per cent -. its biggest intra-day loss since October 03 - to a four-year low of HK $ 7.781 against the US dollar. option prices indicate there is a 27 percent chance the currency will weaken beyond its permitted trading range of HK $ 7.75-HK $ 7.85 by the end of this year, up 9.5 percent on 31 December, Bloomberg data show. The offshore yuan was 0.7 percent lower than 6:17 p.m. local time, after sliding to a five-year low last week.
Hong Kong's fortunes are increasingly intertwined with those of China, an economy that is expected to increase this year at the slowest pace since 190, and the link to the local currency against the US dollar may come under pressure when the sentiment towards the continent is deteriorating. The yuan fell 5.8 percent in Shanghai for a surprise devaluation August 11, even as the central bank burned through $ 321 billion of its foreign exchange reserves supporting the currency over the past five months.
While the yuan depreciation requested paradise player for the Hong Kong dollar, "another dynamic has entered the equation and this dynamic is potentially significant devaluation of the renminbi," said Mirza Baig, head of foreign exchange and interest rate strategy for Asia Pacific at BNP Paribas SA in Singapore. "This dynamic may have become a little more acute in the last days. If the renminbi weakens much, I do not see how Hong Kong would escape the de-anchoring of speculation as well."
Peg Speculation
the Hong Kong dollar is linked to the greenback in 1983, when negotiations between the United Kingdom and Beijing on the return to China of the city have spurred the capital flight, and policy makers in 05 pledged to limit the decline to HK $ 7.85 and capping gains at HK $ 7.75. It traded at the high end of the range recently, in January 4.
The notional value of outstanding put options the right to sell the Hong Kong dollar at lower rates than 7.85 HK rose $ 11.06 billion last month $ 9.49 $, deposit data show Trust & Clearing Corp .. a year implied volatility on the Hong Kong dollar, a measure of price fluctuations cited by traders at the pricing options, doubled so far this month to a high of 3.41 percent in 12 years.
HKMA Pledge
Monetary Authority of Hong Kong Chief Executive Norman Chan said last month the attachment of the local dollar has been the cornerstone of the financial and monetary stability in the city and there was no intention to change it.
government "is fully committed to maintaining the exchange rate system linked, which continues to serve Hong Kong," a spokesman for the authority said Thursday. "We see no need and do not intend to change the system."
There is not the currency of Hong Kong who is out of favor. The Hang Seng Index of shares has declined 10 percent this year, while CLSA Ltd. predicts house prices will fall 8 percent this quarter after falling 7.5 percent in the last three months.
"yuan declines in sea and sense of risk-off led to a sell in the Hong Kong stock market, causing capital outflows from the city and the pressures of local currency, "said Ken Cheung, strategist at Mizuho Bank Ltd." With the stock market decline and Hong Kong increased worries about the economy and the markets of China, I see a further weakening of the Hong Kong dollar. "
Bloomberg
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