USD/HKD Forecast: Is the Hong Kong Dollar Peg at Risk?

Summary:
• The USD/HKD pair has consolidated at the upper side of the peg as the HKMA continues to defend the Hong Kong dollar.

The USD/HKD pair has consolidated at the upper side of the peg as the HKMA continues to defend the Hong Kong dollar. The USD to HKD is trading at 7.8497, meaning that it has risen by 1.30% above the lowest level during the pandemic. So, will the Hong Kong dollar survive the peg?

Is the HKD dollar peg at risk?

Hong Kong has continued to be an attractive place for investors partly because of the city’s currency peg against the US dollar. This peg guarantees that the HKD trades between the range of 7.7500 and 7.8500. Any moves below or above this range are usually met by actions by the Hong Kong Monetary Authority (HKMA), which is the equivalent of the central bank.

The HKMA also tends to follow the actions of the Federal Reserve. This means that it has delivered three rate hikes this year. At the same time, the authority has intervened severely to defend the HKD peg because of the broad US dollar strength. The US dollar index surged above $108 as investors moved to its safety.

The HKMA has intervened by buying local dollars and selling US dollars at a record pace. In total, the bank has sold over H$60 billion this year, which is higher than the H$22.13 that it spent in 2019. The other big purchases happened between April to August 2018 when it spent H$103 billion. 

Unlike past currency interventions, this one is not associated with short-sellers. Instead, the HKMA has been forced to the situation by the broader US dollar strength. Also, there is more outflows due to the widening interest-rate gap with the United States. 

USD/HKD forecast

Conducting a technical analysis on the USD/HKD is relatively difficult because the currency is not free-floating. Instead, the HKD has a peg against the US dollar. The pair is trading at the upper side of this peg. Now, with the US dollar firing on all cylinders, there is a likelihood that the pair will remain in this range in the coming days.

Besides, the HKMA has adequate resources to defend the peg. Historically, investors who have bet against the peg – like Kyle Bass – have often made substantial losses.