HONG KONG - Cracks are starting to emerge in Hong Kong's currency and money markets, as traders speculate the local dollar's resilience to increasingly violent protests won't last.
Analysts are debating whether the latest moves can be attributed to local unrest: cash supply was already under pressure due to seasonal needs from banks, as well as demand for Alibaba Group Holding's massive public offering. But this week's escalation in protests is reviving concern that the demonstrations could eventually lead to capital flight. Chinese President Xi Jinping said ending the violence was Hong Kong's"most urgent task.
The Hong Kong dollar's three-month forward points, an indicator of liquidity conditions in the foreign-exchange market, soared to the highest level since September 1999 this week. An increase in this gauge - resulting from a short-term drainage of cash - coupled with a weaker spot rate"signify an increase in risk-aversion to Hong Kong dollar assets," Chun Him Cheung, a strategist at Morgan Stanley, wrote in a note.
The three-month interbank borrowing costs of the Hong Kong dollar are 46 basis points higher than the equivalent interest rates on the greenback. That's the widest spread since October 1999, suggesting that financing is increasingly expensive for local lenders. On the other hand, the gap makes it costly for traders to short the city's currency.
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Source: The Straits Times - 🏆 8. / 63 Read more »
Source: The Straits Times - 🏆 8. / 63 Read more »