Email of the day on potential for a change to the Hong Kong Dollar Peg
I have posted a query twice on the future of the HKD in your “subscriber's forum” but I never seen any response so far ? so I reiterate my question ...
With Hong Kong being closely linked to China's economy and financials, could it be possible that the HKD be unpegged to the USD, or have the peg revised downward ? And this, for one part due to the uncertainty of predicting the magnitude of the continuing CNY devaluation, and on the other part due to the expected FED raising the interest rate either in Sep or later this year, or early next year ?
Your valuable view as usual would be always appreciated .
The Hong Kong Dollar has been pegged in a reasonably tight band versus the Dollar since 1983 and the currency regime has survived both major bull and bear markets. The rise of China as a major trading hub in its own right and the lowering of tariffs on foreign goods represent a challenge for Hong Kong. Right now the Renminbi is making a lot of headlines and for good reason. The almost decade long trend of appreciation has changed but they will almost certainly attempt to manage the depreciation in the same gradual way they managed the appreciation
The spread between the onshore/offshore exchange rate pulled back today but a contraction back below 1.005 would be needed to signal the pace of foreign repatriations is easing.
With regard to the Hong Kong Dollar there is no prospect of an appreciation versus the Dollar and potential for depreciation is also unlikely at this stage. However there is no doubt that an abrupt devaluation of the Yuan would exert downward pressure on the Hong Kong Dollar. The dire set of circumstances that would cause such a situation do not appear likely that this stage despite the decline in the stock market.
Putting on my contrarian hat, I wonder whether the recent talk of a Hong Kong Dollar devaluation is a symptom of the stress investors are felling following what has been an accelerated decline. Today’s bounce suggests sentiment was buoyed by the prospect of additional Chinese monetary accommodation.
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