HONG KONG/SHANGHAI: Hong Kong's de facto central bank said on Thursday it sold 1.2 billion U.S. dollars against the Hong Kong dollar, which hit the weak end of its trading band.
The city's currency is pegged in a narrow range of 7.75-7.85 to the greenback, and the Hong Kong Monetary Authority (HKMA) intervenes at both ends to underpin the peg.
HKMA's intervention comes after the Hong Kong dollar hit the weak side of the band for the first time in two years last Friday.
The aggregate balance, the key gauge of cash in the banking system, will shrink by HK$9.42 billion on Friday, HKMA said in a statement.
If the Hong Kong dollar remains weak and triggers additional intervention by HKMA, local currency liquidity is likely to shrink further.
The Hong Kong dollar experienced sharp swings over May and June, as foreign and Chinese capital flocked to blockbuster share offerings or to pick up undervalued stocks in the Asian financial hub.
The resulting strength in the currency triggered by these inflows had pressured the HKMA to sell Hong Kong dollars to protect the peg, flooding the banking system with cash and driving the local interest rates sharply lower.
The plunging domestic interbank rates spurred speculative positions that used Hong Kong dollar borrowings to bet on other markets.
Last week, HKMA said the outlook for the direction of the Hong Kong dollar and for interbank rates remains uncertain due to carry trades and other factors. - Reuters
