The Hong Kong dollar is now approaching a weak level in its regular trading range against the United States (US) dollar.
This situation occurs as low borrowing costs and increasingly stable currency fluctuations encourage investors and traders to take the opportunity to sell the Hong Kong dollar and switch to the US dollar that offers higher returns.
According to Bloomberg data, the level of volatility of the US dollar-Hong Kong dollar currency pair for a period of one year has fallen to its lowest level since January 2022.
This calmer market situation makes the trading strategy known as the “carry trade” increasingly attractive. Bond investment
Through this strategy, investors borrow in a currency with low interest rates such as the Hong Kong dollar and invest in a currency that offers higher interest rates such as the US dollar.
Analysts from DBS Bank expect the Hong Kong dollar to weaken to 7.85 against the US dollar in the next one to two months.
This expectation is driven by the still large interest rate gap between the US and Hong Kong and the continued strength of the US dollar in the global market.
In addition, interbank lending rates in Hong Kong have also fallen significantly this month. Low funding costs have allowed investors to continue to carry trade strategies without worrying about a sudden increase in borrowing costs.
At the same time, demand for cash in Hong Kong has also eased due to the weak performance of the local stock market. The Hang Seng Index is expected to record its biggest monthly decline in two years.
Although the Hong Kong dollar is still within a trading range of 7.75 to 7.85 per US dollar, the market now expects the currency to continue to approach this weak level.
If this situation continues, Hong Kong's monetary authorities may have to intervene to ensure that the currency remains within the permitted range.
