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The HKD PEG Thread

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The HKD PEG Thread : 12mos chart : Range: $7.75 - $7.85

 

The HK Dollar may deserve a "hyper-focus" again this week and forward, as HK$7.75 level is set to be tested once again

 

PEG NEWS : > https://www.google.com.hk/?gfe_rd=cr&ei=96I5VdWbE6zVmQXn5YFo#q=hong+kong+dollar+peg&tbm=nws

 

The HK Govt has FX Reserves of $332 bn / 7.2 mn = about HK$350k/ US$46,000 per capita (see post#6)

 

USD in HKD ... 5-days : 10-days : 2-days / 1-yr : Last: CNY-6.2009 / HKD-7.7506 (note: CNY starts at 7.60)

 

HKD-5d_zpsp2uy90kh.gif

 

China is making some big moves:

 

+ It has allowed the lending of stocks, for the purpose of creating short positions

+ It cut the Required Reserve Ratio (for its banks) by 1%, to 18.5%, the sharpest cut since 2008

 

These 10-day charts show the net impact on : DXY : HK:HSI : SHcomp : hsiVsh : HK:2823 : HK:2840 : HK:12 :

 

Might a shift in the HKD peg be one of the next things on the reform agenda?

 

Wiki :

As of 18 May 2005, in addition to the lower guaranteed limit, a new upper guaranteed limit was set for the Hong Kong dollar at 7.75 to the American dollar. The lower limit has been lowered from 7.80 to 7.85 (by 100 pips per week from 23 May to 20 June 2005).

> http://en.wikipedia.org/wiki/Hong_Kong_dollar

 

>Hk St : HSI : prices

(note: hks: 766 0.49, 809, 910 0.70, 1051, 3081, 8088... 927 , 55 , 1104 , ? )

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Longer Term Comparison : HKD versus RMB

 

usdCNY vs. usdHKD ... 5yrs-update : HKD-5yr : CNY-5yr : CNY-12mos

Last: CNY-6.2009 / HKD-7.7506 (note: CNY starts at 7.60)

 

CNY-vsHKD_zpsulbczlfq.gif

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An earlier post on the Peg

Hong Kong's Dollar Peg is under serious pressure

 

USD in HKD ... update

HKD_zpsq7zggxnk.gif

 

Today's headline story is:

HKMA says U.S. Rate rise key to Peg battle

 

"No let-up for now as hot money inflows force actions in the past week to weaken local currency by

injecting HK$30bn to buy greenbacks."

"This will only end with the US raises rates..."

(Or maybe when the HKMA modifies the peg... They are now like Switzerland a few months ago.)

 

 

HK-US dollar peg has outlived its usefulness - William Pesek, in the SCMP, pg.B8

 

The HK Monetary authority "treated the 32-year-old link as the linchpin to the economy's international credibility.

But with Chinese money now swamping the city, the opposite may be true."

"...the flow of money shows no sign of slowing."

Mainland tycoons are "increasing turning to HK's stock and property markets"

Gavekal: "It looks very much like HK is going to get more money and less mainlanders."

"... this is likely to increase tensions."

The GINI ratio has reached the highest levels since record-keeping began in 1971, and

"Puts HK well above the 0.4 level analysts associate with civil unrest."

"... It is no coincidence that record protests flared up at the same time as residential home prices

surged by 13 per cent."

 

ccli_zpswx3vjtng.png

 

"If Hong Kong authorities want to cool down their overheating economy, they should start by addressing

its undervalued currency"

 

This is a key reason why HK's inflation is growing by 4.6%, compared with 1.4% on the mainland, and

0.4% in South Korea.

Meantime the HKMA is defending the peg by selling off massive amounts of HKD.

Mainlanders have been taking advantage of the cheap HKD, and pouring more money into the city.

 

With the peg staying place, the HKD has become a "transmission device for China's imbalances".

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Hong Kong in no rush to switch dollar peg
Financial Times-Apr 15, 2015

The case against a dollar peg is growing. It is not hard to argue that easy US monetary policy has produced bubbles in Hong Kong, most ...


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I do not expect the HK/US peg to go this year. There have been on and off rumours about de-pegging every few years since I arrived in HK in 1992. One year, there was even a run on bank deposits as people panicked and sent money out of HK in anticipation of the HKD being devalued. I have to ask myself why this year would be any different? ...

Thanks for the explanation.

 

I wonder how much HKD money the HK Govt will spend (on US$) defending the peg.

As I type this, I see an FX rate of : HK$7.7502, and the LOD was $7.75.

 

So the TEST is once again underway.

Maybe they will move the band to HK$7.70 to get some relief.

In the past (2005), they have moved the band of the opposite side by a similar increment.

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THE COST IS RISING... of defending the Peg ... 5d-HKD : 10-days

 

One Day's cost = HK$1.55 billion / US$200 million (yesterday: Wed. 4/22)

/ 7.2 mn people = HK$215 per HK Person

 

HKD-10d_zpskjlg8zjk.gif

 

HKMA sells HK$1.55 bln to keep Hong Kong dollar in trading band
Reuters-16 hours ago
The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85.
Under the currency peg, the HKMA is obliged to ...
The Hong Kong Monetary Authority (HKMA) intervened in the currency market, selling HK$1.55 billion ($200 million) in Hong Kong dollars on Wednesday
as the local currency hit the strong end of its trading range.
... selling HK$11.586 billion (US$1.49 billion) in Hong Kong dollars on Monday ...
HK Govt Reserves : US$332 Billion : source
$332bn / US$200mn = 1,650 days of this pressure - as per Wed... $332bn / US$1.49 = 222 d's of Monday pressure
$332bn / 7.2 mn = HK$46,111 per capita

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A weak US might put even more upwards pressure on the HKD:

 

(Reuters) - The appreciation of the U.S. dollar will likely come to an end in the "not too distant future," Federal Reserve Vice Chairman Stanley Fischer said on Thursday.

Fischer was speaking on a panel at the spring meetings of the International Monetary Fund and World Bank

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More than 7 years ago (before 2008?) the HK Govt spent US$100 Billion defending the Peg

 

... according to this comment:

Digital Blonde (7 yrs ago)

I dont read the HKMA statements, because I cover a separate area my research team do however. I am familiar with their behavior from the currency crisis in the late 90's,When Donald Tsang was the finance secretary and when Joesph Yam speaks, I tend to listen. my view is if they successfully defended the Peg whilst coming under enormous speculative pressure globally, spending US$100 Billion dollars to do so, Then I dont see them abandoning the peg, when they are not under financial attack, and the pressure they face stems domestic inflation. These policy makers are unelected, they have no pressure to please constituents. They're concern would be Property developers and other big business which control the cartel, and an upward revaluation could be disastrous for them. I really dont see the end of the peg any time soon. What I think is feasible is perhaps a gradual timeline towards its eventual demise. But I am not a policymaker so I do know what they are thinking.

==

> source: http://hongkong.asiaxpat.com/forums/living-in-or-moving-to-hong-kong/threads/e0aeb6ad-7540-4e07-9930-7e70678febbd/hk-dollar-peg-will-be-dropped-soon/

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Pressure on the HKD continues ... 10-d-HKD : 2-d - US$7 Bn spent in April

 

PEG-10d_zpsigodx1io.gif

 

Was he asked to make this comment? Almost certainly.

 

US dollar peg to remain, says HK chief executive

The Star Online-2 hours ago
Hong Kong Special Administrative Region chief executive Leung Chun-ying gives insights into the HK dollar peg as well as his views about ...

“Yes we had to sell Hong Kong dollars (in recent weeks) to maintain the peg but the amount deployed is quite small relative to the inflows. We have the capacity to handle it (the inflows of funds),” he told a group of reporters yesterday.

The Hong Kong dollar has been pegged to the US dollar when capital started to flow out prior to the handover of the special administrative region by the United Kingdom back to China in July 1997. In 2005 the policy makers committed to limit the currency’s decline to HK$7.85 per dollar and appreciation at HK7.75 per dollar.

According to reports last week, in the months of April the Hong Kong Monetary Authority intervened into the market to maintain the peg amidst rising demand for the Hong Kong dollar. The amount spent to buy up the US dollar in the month of April to maintain the peg was estimated at US$6.8bil.

Since the start of the year, at least two countries have dismantled their currency peg. In January this year, Switzerland did away with the Swiss francs being pegged to the euro. This came about due to the European Central Bank (ECB) undertaking a quantitative easing programme that caused the euro to go on a depreciating trend.

This sent huge amount of capital into the more stable francs, something that forced the government to lift the peg.

As for the Hong Kong dollar, the demand picked up largely due to two reasons. Investors sought the Hong Kong dollar to take up positions in under-valued China mainland stocks that are traded on the Shanghai-Hong Kong Stock Connect. The other reason is the appreciating yuan against the US dollar.

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HKMA sells HK$14.88 bln to keep Hong Kong dollar in trading band
Reuters-30 minutes ago

The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85.


.(Reuters) - The Hong Kong Monetary Authority (HKMA) intervened in the currency market again late on Friday, selling a total HK$14.88 billion ($1.92 billion) in Hong Kong dollars as the local currency hit the strong end of its trading range.

The city's de-facto central bank, which has intervened multiple times in the market in the past fortnight, had sold HK$13.18 billion ($1.70 billion) earlier that day.



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The PEG Support operation has had to be ramped up

 

US$ buys set to beat last year's action - SCMP, pg. B1

 

Monetary authority has acted 12 times since April 9 for combined injection of HK$71.49b

(= US$ 9.2 bn., versus FX Reserves of over US$300 bn.)

 

+ the HKMA "faces fresh flows into local stocks",

+ the Yuan yesterday showed its biggest fall in 13 yrs against the USD

+ to support the HKD, the MA spent HK$13.175 bn late Friday, and another HK$1.7 billion on Saturday

 

"I would not be surprised if it (ie the required support) breaks the historical high of HK$600 billion" - Wilson Chan, Bankers Institute

 

(seeing this on pg. B1 may suggest the story "has legs" and the threat to the Peg is getting stronger. I cannot believe that the HKMA will spend over Us$100 bn - is that coming? - without at least adjusting the PEG range. Maybe we will found out... )

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Henny Sender, writing in today's FT:

 

Slowdown in China is going to be harder for its trading partners, pg 22

 

+ Citigroup is now suggesting shorting 9 currencies (Is it time to Buy them maybe?):

NKR, Ruble, MYR, AUD, NZD, TWD, THB, Korean Won, Chilean peso

(most of which are already near their low against the USD.)

 

+ The logic is: China is slowing, and commodities will fall, and it will buy less from its major trading partners

"China may be slowing more than the official data suggest" (growing at 5%, instead of 7%?)

 

+ We should also see a reversal of asset appreciation, and tighter money policy

 

+ Many of the trading partners have been too optimistic about China's growth and invested too much

in betting on business with China - Bank credit in emerging Asia hit an alltime high of 113% of GDP: Q1-2015

 

USDCNY / Chinese Yuan (CURRENCY) ... update : Further to go? 6.60 - 6.70 maybe

6.4263 arrow_up_sm.gif +0.1008 : + 1.59%

CNY_zpsixjgctio.gif

 

+ implied by the China slowdown, are negative second-round effects.

One back to watch is Standard Chartered, with its $50bn in commodities exposure

 

UK:STAN / Standard Chartered PLC ... update

STAN_zpsmrkt7nqe.gif

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The PEG is under attack again ... 12-mos

 

"Hong Kong had $339.9 billion of foreign-exchange reserves at the end of July, the eighth-largest stockpile in the world"

 

HKD_zpskk8re8um.gif

 

Hong Kong Monetary Authority forced to act twice to defend currency ...
South China Morning Post (subscription)-1 Sep 2015
Investors switching out of the yuan since its devaluation last month have pushed up the Hong Kong dollar, which hit the high end of its peg to ...
Based on the chart (above) the defense of the Peg (ie selling HKD) must be continuing.
And this chart too:
-1x-1.jpg
(in edit - I found these stories):
1.
HKMA intervenes for first time since April to defend peg - Aug. 31st
2.
HKMA sells HK$4.26 bln to keep Hong Kong dollar in trading band
Reuters-22 Sep 2015
The Hong Kong Monetary Authority (HKMA) stepped into the currency market and sold HK$4.26 billion (US $550 million) in Hong Kong dollars on Tuesday as the local currency hit the strong end of its trading range.
The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85. Under the currency peg, the HKMA is obliged to ...
3.
HK should devalue the currency peg
South China Morning Post (subscription)-20 Sep 2015
The same belief is true for the commitment to the Hong Kong dollar's peg to the US dollar. Hong Kong's current monetary system is the root ...
. . .

The Hong Kong Monetary Authority is caught in its own intellectual cul-de-sac: that the peg must be maintained at all costs from the viewpoint of a stable Hong Kong dollar.

That is a gross mistake. The problem is that they are failing to see the peg's problem is the US dollar, which has become a debased currency. It is dragging down more than Hong Kong's monetary policy - it threatens its society and economy. Yet it is defended by bureaucrats with a fervour and sense of mission displayed by worshippers of Stonehenge.

. . .

Quantitative easing, as part of an activist Fed policy, has proven to be ineffective. It has pushed global financial markets and Hong Kong's property sector to an edge where a controlled retreat is unlikely. HKMA chief executive Norman Chan Tak-lam recently said: "In terms of Hong Kong's property market, the disconnect between the purchasing power of our citizens and the high valuation has become very serious for quite some time."

. . .

The HKMA holds US$340 billion in foreign reserves and a 400 billion yuan (HK$486 billion) swap line with the People's Bank of China to defend against speculators. Hong Kong people would benefit more from a surprise devaluation rather than a wasteful and hopeless defence of the peg.

 

("Surprise DEVALUATION???"

The problem is that the HKD is too popular in global markets - How does one fight THAT pressure?)

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HKMA sells HK$13.64 bln to keep Hong Kong dollar in trading band
Reuters-16 Oct 2015

 

7ae192777eadaf1d88727ba84fb4e4da.jpg?ito

 

The Hong Kong dollar peg: the beautiful self-adjusting mechanism ...

South China Morning Post (subscription)-17 Oct 2015
It says that you pick an exchange rate to the US dollar, HK$7.80 in our case, and any time that someone wants Hong Kong dollars at that rate, ...

Explore in depth (5 more articles)

Battle to defend Hong Kong dollar peg not over with more HKMA ...
South China Morning Post (subscription)-6 Oct 2015
The Hong Kong Monetary Authority is tipped to continue its market intervention to defend the Hong Kong dollar peg in the fourth quarter while ...
=== ===

Oct 17 The Hong Kong Monetary Authority (HKMA) stepped into the currency market and sold a total of HK$13.64 billion ($1.76 billion) on Friday as the local currency hit the strong end of its trading range.

According to the HKMA, the latest intervention will lift the aggregate balance - the sum of balances on clearing accounts maintained by banks with the authority - to HK$395.143 billion on Oct. 20, when the injected funds will be settled.

The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85.

. . .

. It's a beautiful self-adjusting mechanism.

Or rather, it was. But what happens when you have fog-brained academics in charge of monetary affairs in the US and they reduce interest rates to zero for seven years? No one thought of that in 1983 and it sticks a wrench into the workings of this mechanism. There are no longer interest rate attractions to one side or the other this way.

And what further happens when you have a very big sovereign neighbour with a supposedly closed capital account that actually springs more leaks than a wide-mesh sieve and suddenly everyone there wants out of yuan and into HK dollars for reasons that have nothing to do with the returns on either.

You then get what you see in the first chart - an exchange rate that now butts right up against the HKMA's HK$7.75 must-intervene level and that, as the second chart shows, has been kept there only by HK$366 billion of accumulated intervention.

It is not quite how the original architects of the peg expected things to work out and, while the HKMA still has plenty of thin air, it's not a happy state of affairs.

. . .

The latest round of interventions were triggered by investors switching out of yuan deposits or other investments back to the Hong Kong dollar, prompted by the 3 per cent devaluation in the yuan in August. These conversions pushed the Hong Kong dollar to 7.75 - the high end of its peg to the greenback - triggering the HKMA to dip into its HK$3.27 trillion Exchange Fund to defend the link. The HKMA will intervene in the market whenever the currency is trading beyond the range of 7.75 to 7.85.

 

"It is likely the HKMA will have to do more intervention to defend the peg until the end of this year because yuan devaluation is likely to continue in the fourth quarter together with the weak China economy," said Jasper Lo Cho-yan, a director of Tung Shing Futures.

"The trend for yuan conversion back to Hong Kong dollars will continue.

 

hkma.jpg?itok=oZXTDIKj

Exterior shot of the Hong Kong Monetary Authority. Photo: SCMP Pictures

 

"A strong Hong Kong dollar is likely to continue and the HKMA will need to continue its battle to weaken the currency to defend the peg," Lo said.

The previous round of HKMA interventions came in April but for different reasons. The authority intervened 12 times between April 9-27, spending HK$71.49 billion to weaken the Hong Kong dollar that had spiked during a stock market rally. Hot money flowing into the stock market saw the Hang Seng Index hit a seven year high, tripling the average daily market turnover to HK$200 billion in April.

 

The HK$147.29 billion spent to defend the peg this year has easily bypassed last year's HK$75.3 billion intervention and the HK$110 billion spent in 2012 - both also triggered by hot money inflows.

 

However, the record high intervention remains the 16-month period from September 2008 to December 2009 when the HKMA sold more than HK$620 billion to weaken the local dollar after large amounts of hot money flowed into the Hong Kong stock and property markets when the US began its monetary easing policy after the global financial crisis

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PRICES and the PEG

 

/ 1 /

HK moves into global top 10 most expensive locations for expats
EJ Insight-7 hours ago
As the Hong Kong dollar is pegged to the US dollar, the local unit has strengthened along with the greenback, push up the costs for those ...
/ 2 /
HK moves into global top 10 most expensive locations for expats
EJ Insight-7 hours ago
As the Hong Kong dollar is pegged to the US dollar, the local unit has strengthened along with the greenback, push up the costs for those ...

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1% Drop in the HKD ... update : 7.82 hkd per US$1

 

hkd_zpsyuo3fn4q.gif

 

China’s economic problems are now spilling into Hong Kong, opening up a new fault line of distress.

The Hong Kong dollar peg has fallen for the fourth day in a row after the territory joined China last week in being hit by capital outflows.

 

This reversal comes as a surprise, as until recently Hong Kong’s problem had been coping with excess money inflows as investors switched out of a weakening yuan USDCNH, +0.1487% .

Under the peg that links the Hong Kong dollar to the U.S. dollar at 7.80 USDHKD, +0.0371% authorities will intervene if it trades beyond 7.75 or 7.85 to the U.S. dollar. Today it hit 7.809 to the U.S. dollar.

 

Hong Kong is particularly sensitive to capital outflows, given earlier inflows helped push interest rates down to the floor, fueling a property bubble and lending spree into China. Analysts at Daiwa calculate that since 2005 the city has received $237 billion in net inflows from the rest of the world and further lending multiplied this amount by 2.5 times

 

==

> http://www.marketwatch.com/story/have-investors-lost-faith-in-hong-kong-as-well-as-in-china-2016-01-19?siteid=bigcharts&dist=bigcharts

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