Hong Kong Financial Authority purchased slightly below 6.4bn HKD to prop up the foreign money.
The HKD has been operating alongside weaker finish of its buying and selling band (ie prime finish of the USD/HKD band).
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I’ve posted on this earlier than, ICYMI:
Since 1983, the HKD has been pegged to the U.S. greenback underneath a Linked Trade Charge System (LERS), making certain alternate charge stability and selling investor confidence. The peg ties the HKD at roughly 7.80 per U.S. greenback, with a permitted buying and selling vary of seven.75 to 7.85.
The HKMA makes use of an computerized adjustment mechanism to maintain the HKD inside its allowed band:
- Foreign money Board System: The HKMA operates a foreign money board association, making certain each HKD issued is backed by U.S. greenback reserves at a hard and fast charge. This implies adjustments within the financial base (the sum of foreign money in circulation and financial institution reserves) are immediately tied to overseas alternate inflows or outflows.
- Intervention Mechanism:
- When the HKD approaches the sturdy facet of seven.75, the HKMA sells HKD and buys U.S. {dollars}, injecting liquidity into the monetary system.
- When the HKD nears the weak facet of seven.85, the HKMA does the reverse—shopping for HKD and promoting U.S. {dollars}, withdrawing liquidity.
This ensures alternate charge stability throughout the goal band.
