USD/HKD Outlook:
The USD/HKD rate is likely to increase as it currently trades above the 90-day average and is near recent highs. This appreciation is driven by heightened safe-haven demand stemming from geopolitical tensions.
Key drivers:
• Rate gap: The US Federal Reserve's decision to maintain interest rates creates a favorable rate differential compared to the HKMA's stable rate.
• Risk/commodities: Oil price increases due to conflict risks are boosting demand for USD as oil transactions are usually dollar-denominated.
• One macro factor: Continued fears over escalating conflicts in the Middle East are prompting investors to flock to the USD for safety.
Range:
The USD/HKD is expected to drift higher within its recent range, testing the upper limits.
What could change it:
• Upside risk: A significant escalation in geopolitical conflicts could drive further safe-haven investments into the USD.
• Downside risk: A sudden de-escalation of tensions could lead to profit-taking and reduce demand for the USD.