Hong Kong Dollar General Info
Representing a little less than 2% of the foreign exchange market’s daily turnover, the Hong Kong dollar is the world’s thirteenth most traded currency. It is subdivided into 100 cents.
The Hong Kong dollar has been pegged to the US dollar since 1983 and the USD/HKD exchange rate has been limited to a range of 7.75 to 7.85 since 2005. The Hong Kong dollar’s peg is backed by one of the world's largest foreign exchange reserves (Hong Kong’s official reserves in 2016 were worth US$360 billion).
Hong Kong dollars are issued by the country’s government, but also by three local banks – HSBC, Standard Chartered and Bank of China – providing those banks have on deposit the US dollar equivalent of what they print.
The Hong Kong dollar reached an all-time low against the US dollar in September 1983 when USD/HKD reached 9.6 (HKD/USD 0.104), and its all-time high came in March 1978 when USD/HKD traded at just 4.6 (HKD/USD 0.217).
HKD - Market View
The Hong Kong dollar fell in early August to a nineteen-month low of 7.828 against the US dollar but recovered slightly by mid-September to 7.813. At the time of this report, Hong Kong’s currency had fallen in every month of 2017 against USD and in all but one month against the euro. It remained Asia’s second worst performer of the year, ahead of only the Philippine peso.
By its own standards, HKD experienced a tumultuous time on September 7th and 8th, on which the currency made back three months’ worth of losses against the US dollar over an eighteen-hour period. It was stated afterwards by a Mizuho analyst that the move was driven by “a sizeable amount of capital being moved into HKD, which triggered stop-loss [orders].” Gains were short lived however, with the currency giving back two-thirds of those gains in the days that followed.
Rates paid on HKD have remained depressed in 2017 even as the HKMA has raised borrowing costs in step with the US Federal Reserve. The US-over-Hong Kong rate premium (around 55 basis points in August) is the principal reason for the Hong Kong dollar’s decline this year.
In September, Hong Kong’s Finance Secretary, Paul Chan, issued a warning on the country’s housing market for the second time since June.
“One has to be very careful if one really wants to buy a property in Hong Kong…I would not be surprised if there will be a certain adjustment in the market,” said Secretary Chan.
In June, Secretary Chan had described Hong Kong’s housing market as a potentially “dangerous situation.”