Hong Kong's central financial institution FX market intervention but once more

Hong Kong Financial Authority purchased simply over 7bn 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 Alternate Fee System (LERS), making certain trade price 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 automated adjustment mechanism to maintain the HKD inside its allowed band:

• Forex Board System: The HKMA operates a foreign money board association, making certain each HKD issued is backed by U.S. greenback reserves at a set price. This implies adjustments within the financial base (the sum of foreign money in circulation and financial institution reserves) are instantly tied to international trade inflows or outflows.
• Intervention Mechanism:
  • When the HKD approaches the robust aspect of seven.75, the HKMA sells HKD and buys U.S. , injecting liquidity into the monetary system.
  • When the HKD nears the weak aspect of seven.85, the HKMA does the reverse—shopping for HKD and promoting U.S. , withdrawing liquidity.This ensures trade price stability inside the goal band.

This text was written by Aaron Cutchburt at investinglive.com.