Hong Kong Buys $2.07 Billion in Week to Defend Currency Peg

Hong Kong’s de facto central bank bought $2.07 billion this week to stop the local currency from strengthening beyond its 31-year-old peg to the greenback.

Share listings, dividends and mergers and acquisitions are driving demand, the Hong Kong Monetary Authority said July 26. OAO MegaFon, Russia’s second-largest wireless operator, has shifted some of its cash holdings into the city’s dollar as the U.S. and Europe ratchet up sanctions, Chief Financial Officer Gevork Vermishyan said in an interview yesterday.

Hong Kong’s Hang Seng Index (HSI) of shares rallied 6.8 percent in July, the biggest monthly gain since September 2012, while the world’s second-largest exchange-traded fund investing in Chinese stocks said demand is so strong that it is close to exhausting its domestic investment quota. Data today showed China’s manufacturing expanded at the fastest pace in more than two years in July.

“Besides technical reasons due to commercial activities, the Hong Kong dollar has been strong as inflows are coming for China-related assets,” said Ho Man Chun, a strategist at Bank of Communications Co.’s Hong Kong branch. “The Hong Kong dollar is likely to stay strong as China’s economic recovery continues.”

The currency was linked to the U.S. dollar in 1983 when negotiations between China and the U.K. over the city’s return to Chinese rule spurred capital outflows. It was kept at HK$7.8 per dollar until 2005, when policy makers committed to limiting declines to HK$7.85 and capping gains at HK$7.75. The Hong Kong dollar traded at HK$7.7500 as of 11:15 a.m. local time.

Full article: Hong Kong Buys $2.07 Billion in Week to Defend Currency Peg (Fox News)

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