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USD/HKD
forecast, eop
Latest Prev
Close 7.81 7.79
2Q08 7.81 7.80
3Q08 7.83 7.77
4Q08 7.83 7.75
1Q09 7.85 7.78
2Q09 7.85 7.78
3Q09 7.83 7.78
4Q09 7.80 7.79
3M Hibor
forecast, eop
Latest Prev
Close 2.15 2.14
2Q08 1.75 1.75
3Q08 1.95 1.85
4Q08 2.35 1.85
1Q09 3.05 2.63
2Q09 3.70 --
3Q09 4.20 --
4Q09 4.15 --
Latest close on Jun 11
Prev close on Mar 12
Hong Kong dollar – peg intact despite surge in CNY deposits
USD/HKD bottomed at 7.76 on Mar 17 and proceeded to rise above 7.80 again
on May 20. Some market players blamed the HKD’s weakness on more Hong
Kongers opening CNY deposits. Instead, we prefer to attribute this to the broad
USD’s recovery on growing market belief that the worst was over for the US
subprime/credit crisis.
Nonetheless, the rapid growth of CNY deposits in Hong Kong in 2008 has attracted
sufficient attention to warrant some discussion. Since the start of this year, CNY
deposits surged to CNY76.6bn by Apr08, more-than-doubled the CNY33.4bn reported
in Dec07.
The interest in CNY deposits as an alternative asset class was probably triggered
by the sharp 35% fall in HK equities from Nov 2007 into Mar 2008. As China’s
stock market fell 50% from its peak, earlier optimism surrounding the “throughtrain”
scheme to allow individual mainland Chinese to invest directly in HK
equities evaporated. Not surprisingly, CNY deposits started to make sense to
Hong Kongers as they turned their attention towards the divergent monetary
policies of the mainland and the territory. While Hong Kong’s monetary policy
was tracking the Fed in lowering interest rates, China was visibly accelerating
the CNY’s appreciation to augment its fight against rising inflation and overheating
risks.
That said, this surge in CNY deposits is unlikely to pose a serious threat to the
HKD peg. As at Apr08, CNY deposits accounted for only 1.2% of total outstanding
deposits in the territory. Looking ahead, we also expect HK interest rates to
start rising with the Fed from 4Q08 into 3Q09. Meanwhile, China is starting to
show signs that it may be looking to slow the CNY’s appreciation pace on signs
overheating risks may be ebbing.
In 2Q08, the HKD peg was not spared from speculation that Middle East countries
are considering abandoning their USD pegs to fight inflation. The Hong Kong
Monetary Authority (HKMA) duly ruled out changing the HKD peg to ease rising
price pressures. The World Bank and the IMF reiterated their support for HK’s
commitment to the peg.
Looking ahead, we prefer to focus on broad USD trends, especially those against
Asian currencies, in shaping the view for the HKD. We also reckon that the
world now considers record high oil prices a threat to the economic and financial
stability in the world. Looking ahead, we reckon that G7 nations believe that
ending the USD’s weakness against major currencies will be the first important
step towards lowering oil prices.
USD/HKD bottomed as USD recovered on hopes
that worst is over for US financial crisis
130
125
120
115
USD/HKD
(rhs)
7.84
7.82
7.80
Bearish HK equities probably encouraged interest
in CNY deposits
35000
30000
25000
Hang Seng
Index (lhs)
90
80
70
60
50
110
105
100
95
USD/JPY
(lhs)
Jan-07 Jul-07 Jan-08
7.78
7.76
7.74
20000
15000
10000
CNY deposits in HK
(CNY bn, rhs)
Jan-05 Jan-06 Jan-07 Jan-08
40
30
20
10
0
32