HONG KONG: The Hong Kong dollar and yuan remained flat on Friday morning but both are on track to report a monthly fall.
The Hong Kong dollar edged up by 0.01 per cent to 7.7925 at 10.45am on Friday, the last trading day of the month. It is poised to report a 0.55 per cent loss for the whole month, marked by one of the local currency’s biggest swings and sharpest falls in the 32-year history of the peg.
The yuan remained soft with offshore yuan weaker by 0.04 per cent at 10.45 am to trade at 6.6163 to the US dollar. It is likely to post a loss off 0.74 per cent for the whole month, with analysts saying it remains on a weakening trend.
Stephen Innes, a senior trader at OANDA Asia Pacific, said the yuan continued to face headwinds, while speculation on Hong Kong dollar would continue.
“I do not see the weakness in the Hong Kong dollar as anything out of the norm especially given the recent Fed hike which in itself pressures the local unit from an interest differential perspective. However, the market started to get a bit too excited with unfounded rumours circulating regarding the peg giving way,” Innes said.
“I suspect that perhaps contributed to overzealousness from the speculative community causing the overshoot.”
He said trading had slowed considerably leading into the Lunar New Year, but “I expect the offshore yuan will come under renewed pressure after the Chinese New Year holidays”.
Under the peg, the Hong Kong Monetary Authority will intervene whenever the currency trades close to the strong end of 7.75 and weak end at 7.85 and January has marked the first time in a decade the HKMA needed to support the currency from falling to the weak end of the peg.
The Hong Kong dollar remained stable on Friday, trading at the strong end of the 7.8 peg. On a weekly basis, the currency is poised to report its first weekly gain of the year, rising 0.08 per cent rise this week after three weeks of falls.
On a monthly basis, the local currency has lost 0.55 per cent against the US dollar, the biggest fall in a decade. The currency once hit 7.8294 last week, an eight-and-a-half-year low. The Hong Kong dollar bounced back after some big buying orders, which currency traders believed was the HKMA taking action to prevent the currency from falling too low, pushed the currency to trade above 7.80 level from Thursday of last week.
The offshore yuan is poised to end the week down by 0.09 per cent after rising 0.07 per cent last week and 1 per cent the previous week on People’s Bank of China intervention.
The central bank intervention came as the currency depreciated 1.72 per cent in the first week of this year with international speculators betting it would be 10 per cent to 15 per cent weaker this year due to the weak economy and capital outflows. The PBOC and the central government say they are committed to a stable currency.
On a monthly basis, the offshore yuan is likely to report a depreciation of 0.74 per cent, following a 5.67 per cent fall last year.
Onshore yuan remained flat at 6.5738 per US dollar at 10.45am, edging up 0.01 per cent from Thursday. The onshore yuan is poised to report a 0.08 per cent gain this week but is likely to report a 1.28 per cent depreciation this month after a loss of 4.63 per cent last year.
The spread between the onshore and offshore yuan has narrowed to 425 basis points, down from a record 1,400 basis points on January 7.
The PBOC set the yuan mid-price against the US dollar at 6.5516 on Friday, 12 basis points stronger than Thursday and the seventh day in a row the central bank has set it higher.
It set the mid-price of the yuan against the euro weaker by 239 basis points to 7.1700, and for every 100 yen stronger by 152 basis points at 5.5205. The mid-price against the pound was set 703 basis points weaker at 9.4209.
Traders are allowed to trade up to 2 per cent either side of the mid-price for the day.
