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Aussie Falls on CPI Miss and Hong Kong Dollar Slide Continues, Now at Fourteen-Month Lows

Within the past hour, the Australian dollar has fallen sharply following weaker than expected CPI data.

Figures from the Australian Bureau of Statistics show that consumer prices grew 0.5% in the first-quarter of 2017 and at an annualized rate of 2.1%.

AUD/USD fell from 0.7539 to 0.7508 on the news and, as of writing, trades at 0.7512.

AUD/JPY fell from 83.90 to 83.50 and trades at 83.58 as of writing.

The exchange rate for AUD/NZD also fell, from 1.0854 to 1.0820, but the pair has retraced more than half of that move since the data’s release.

Although today’s data represents a slight miss on the market’s forecast for quarterly CPI growth of 0.6%, CPI is now inside the RBA’s 2%-3% inflation target band, which will please the Bank’s board.

Analysts will always make comparisons, however, and given its neighbor, New Zealand, is experiencing rapid growth in consumer prices, market chatter regarding future monetary policy and interest rate differentials between the two countries should be expected, as should forecasts for a fall in AUD/NZD on these grounds.

 

Pace of Hong Kong Dollar Slide Increases



USD/HKD 3 Month Chart

The Hong Kong dollar ended its trading day on Tuesday against the US dollar at 7.7792 – a new fourteen-month low in the Asian currency.

As of writing, at 02:30 GMT, the Hong Kong dollar is weaker still, with a single US dollar now buying 7.7815 HKD.

Simply, the ever-widening interest rate gap between the US and Hong Kong is driving the Hong Kong dollar down. As of Tuesday, the premium of one-month US Libor over its Hong Kong equivalent, Hibor, stands at 60 basis points – its largest since December 2008.

Although the Hong Kong dollar doesn’t move much – because it has been pegged to the US dollar since 1983 and has been limited to a USD/HKD range of 7.75 to 7.85 since 2005 – when it does move, investors take notice.

Having pressed against its lower boundary of 7.75 (the boundary of allowable HKD strength) throughout much of 2016, the USD/HKD rate has moved only one way in 2017 – up, which is to say that the Hong Kong dollar is weakening.

In recent days, the speed of the fall in HKD has alerted analysts who might usually be talking up more popular topics, such as the French election, Trump’s tax cuts, Brexit and so on.

The last two trading days in USD/HKD have seen unusually large ranges and the Asian currency has posted new fourteen-month lows for six consecutive days. Monday’s performance was concerning, with the Hong Kong dollar experiencing its largest daily fall since May-2016.

Unfortunately for holders of HKD, the interest rate differential driving the currency’s weakness is likely to persist for some time and several analysts are now predicting moves in USD/HKD towards its upper boundary, with numbers of 7.82 and 7.79 suggested.

Those in Hong Kong in need of foreign currency at some point this year should consider taking advantage of current rates and changing their money now, rather than later. Readers can easily find the cheapest provider of HKD foreign currency transfers using BestExchangeRates.com’s online comparison calculator.

 

 
Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.