by winston » Fri Jan 15, 2016 7:40 am
HK dollar slumps on yuan woes
The Hong Kong dollar posted its worst fall in 12 years against the greenback in late local trade yesterday, as bets on more yuan depreciation spilled over to the local currency market.
Traders reported funds selling the Hong Kong dollar against the greenback , with some firms also pulling back from converting their offshore yuan deposits into the local dollar.
The sharp drop in the local dollar its biggest since late 2003 when a deadly outbreak of SARS swept the territory took market participants by surprise and pulled the currency from the stronger end of its trading band.
"The offshore yuan has been falling again today which has put pressure on the Hong Kong dollar," said Kenix Lai, a senior market analyst at Bank of East Asia in Hong Kong. "Hong Kong is facing headwinds with the Hang Seng Index below 20,000 and sentiment in the retail and property markets remaining weak."
In late afternoon trade, the local dollar suddenly sank to 7.7810 per dollar, its lowest since December 2011 from 7.7605 earlier, a large move for a pegged currency. It closed at 7.7620 per dollar on Wednesday.
Traders said there was some unwinding of Hong Kong dollar carry trades, using the local dollar to fund Chinese assets, as well as some funds aggressively buying dollars.
The move in the cash market was accompanied by a spurt in trading volumes and a rise in implied volatility a gauge of expected currency swing in the derivatives markets.
The Hong Kong dollar is pegged to the US dollar on a fixed exchange rate of HK$7.80 per dollar and allowed to fluctuate in a tiny 7.75 - 7.85 band.
HSBC expects the yuan to weaken to 6.7 per US dollar by the year-end.
"The yuan is not being manipulated lower. There is a weakness in the economy and rates are coming down," said HSBC global head of foreign exchange strategy David Bloom.
As for stocks, the Shanghai benchmark rebounded 2 percent as some investors bet that the lows hit during last summer's rout would not be so easily breached.
Hong Kong shares, meanwhile, bounced off fresh 2 lows hit after a Wall Street slide, paring losses after a sharp rebound in mainland stocks eased the gloom stemming from a tumble in global stocks. The Hang Seng Index fell 0.6 percent, to 19,817.41.
Source: REUTERS
It's all about "how much you made when you were right" & "how little you lost when you were wrong"