HK dollar to hit weakest level within its peg system to USD as Fed shrinks balance sheet
Bank of America Merrill Lynch suggests local currency will slip to 7.85 against the greenback, prompting intervention by the Hong Kong Monetary Authority
The planned reduction in the US Federal Reserve’s balance sheet will eventually lead the Hong Kong dollar to 7.85 against the greenback, to which it is pegged – the weak side of the allowed value range – and could spark speculative short-selling, prompting intervention by the Hong Kong Monetary Authority (HKMA), according to analysts at Bank of America Merrill Lynch (BofAML).
The HK dollar trades between 7.75 and 7.85 to the US dollar.
Such an intervention was needed after the Fed started its programme of quantitative easing in 2009, but the upcoming move is likely to be done in the opposite way.
“Although we believe this is entirely consistent with the currency board’s framework, we do not rule out the possibility of speculative pressures on the Hong Kong dollar,” BofAML analysts Ronald Man and Sylvia Sheng said in a latest research report.
“In this scenario, we recommend investors be patient and avoid any excessive moves as we believe the currency board is here to stay.”
