The Hong Kong dollar declined for four consecutive days to a four-year low of 7.8040 against the US dollar Tuesday morning. Last Thursday the Hong Kong dollar dropped by 0.29 percent, its biggest intra-day loss since October 2003.
According to the Economic Times, the drop in Hong Kong dollar is brought by the volatility of the yuan in China and other offshore markets, which spilled over to Hong Kong. The local dollar traded at 7.8040 per USD during the opening trade. It was 7.80 during the previous close. It finally hit a record low of 7.8045, which is the lowest it has been since September 23, 2011. Analysts predict that the local dollar could drop further down to a 7.75 to 7.85 band.
Meanwhile, according to Bloomberg News, speculations are surrounding the 32-year-old currency peg in the options market that it may end as more investors lose their confidence in China's assets. It hit HK$7.7817 against the US dollar Thursday.
Meanwhile, the South China Morning Post wrote that Hong Kong Monetary Authority chief executive Norman Chan Tak-lam pledged to defend the Hong Kong dollar even though the currency is facing US$130 billion worth of capital outflows as the US increased interest rates and local economy is getting weaker.
"We have no plan, no intention, and have no need to change the peg link system which has served Hong Kong financial markets well over the past three decades," said Chan Tak-lam. "The HKMA is capable and is determined to keep the peg going on as the system keeps the Hong Kong dollar stable, which is the cornerstone of our economy."
According to Chan, the outflow of USD capital from Hong Kong bolstered the drop of the local dollar. He said that the outflow was normal after the US interest rate hike in December. The weak Hong Kong economy and the falling stock market is also driving the HK$ further down.
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