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Anzo Lim

USD/HKD: HKD Saw Its Greatest Surge against USD Since August

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The Hong Kong dollar exchange suddenly registered the largest increase in four months overnight. The Hong Kong dollar rose to a strong side Convertibility Undertaking (CU) range as the currency surged to above 7.8 against the US dollar, the greatest surge since August. Traders pointed out that cash supply is expected to be tight in the next few days because banks are hoarding funds for regulatory review at the end of the year. The huge spread between the HKD and USD may force speculators to abandon bearish bets.

 

Traders may close positions early. Usually it is more difficult to find counterparties to close positions in the holiday season at the end of the year, especially short positions of Hong Kong dollars; the current one-month Hibor in HKD is 73 basis points higher than the USD interbank borrowing rate of the same term. The situation was the other way around at this time last year, when Hibor was lower than Libor. This had allowed traders who borrowed HKD and bought USD -denominated assets made considerable profits, and may have offset the potential impact of cash demand at the end of the year.

 

DBS Bank said that some financial institutions may sell their forex positions to buy Hong Kong dollars because Hibor has been high for some time and they need cash to meet end-of-the-year demand .

Edited by Anzo Lim
 

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