The Hong Kong dollar has been weak, nearing the lower end of its permitted trading band

During Europe hours Thursday, head of the Hong Kong Monetary Authority (HKMA) Norman Chan made a few statements, reiterating the 7.85 level as the limit, the HKMA will not aloow HKD to weaken beyond there:

  • the HKMA does not want the HKD to weaken
  • "In fact, with the widening of the spreads between HKD and USD interest rates, we are looking forward to funds flowing from the HKD into the USD, causing the HKD exchange rate to reach 7.85, a level where the HKMA will take action"

Bolding mine i.e. HKMA will intervene in some way if necessary. How?

HSBC have noted the HKMA have tools:

  • the discount window
  • direct intervention in the FX market
  • and a mandate introduced in 1988 (still unused) allowing the HKMA to impose negative nominal interest rates should speculative flows become to great

Chan referred to another tool - issue additional Exchange Fund bills

and:

  • "We do not have plans to issue additional Exchange Fund bills for the time being and hope that market players will not take it wrongly that the HKMA does not want the HKD to weaken"
  • He added that the HKMA's issuance of additional Exchange Fund bills last time had been solely in response to market demand for highly liquid instruments and "had nothing to do with the strengthening or weakening of the HKD".

Update on the HKD (daily chart):

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via HSBC and Reuters