Reversal Reappears After Two Months: Why Did the Hong Kong Dollar Suddenly "Soar"?

On August 19, the Hong Kong dollar to US dollar exchange rate surged rapidly. As of 18:00 when the Shanghai Securities News reporter filed the report, the Hong Kong dollar to US dollar rate rose to a high of 7.7926, with an intraday increase of 0.35%.

This marked the fifth consecutive trading day of strengthening for the Hong Kong dollar to US dollar exchange rate. After maintaining the weak-side convertibility guarantee level of 7.85 Hong Kong dollars to 1 US dollar for nearly 50 days, the Hong Kong dollar to US dollar exchange rate recently "soared," breaking through six key levels from 7.85 to 7.80.

Analysts believe that this round of the Hong Kong dollar's "dramatic" significant appreciation stems from the "quantitative to qualitative change" after the Hong Kong Monetary Authority's repeated interventions to stabilize the Hong Kong dollar exchange rate—as the aggregate balance of the Hong Kong dollar fell to a certain level, the interest rate spread between the Hong Kong dollar and the US dollar narrowed, leading to the unwinding of carry trades. Additionally, it is related to expectations of a Fed rate cut and the recent surge of southbound funds "sweeping up" Hong Kong stocks.

The recent reversals between the strong and weak sides are both manifestations of Hong Kong's linked exchange rate system implemented since 1983: if the Hong Kong dollar exchange rate triggers the strong-side convertibility guarantee, the Hong Kong Monetary Authority will buy US dollars and sell Hong Kong dollars to stabilize the exchange rate at no higher than 7.75; conversely, if the Hong Kong dollar exchange rate triggers the weak-side convertibility guarantee, reverse operations are conducted to stabilize the exchange rate at no lower than 7.85. However, the recent two reversal trends have shown a pattern of "sharp rises and sharp falls."

The reporter noted that to stabilize the Hong Kong dollar exchange rate, the Hong Kong Monetary Authority withdrew HK$7.065 billion and HK$3.376 billion on August 13 and 14, respectively, causing the aggregate balance of the Hong Kong banking system to fall from a high of nearly HK$175 billion in June to HK$53.7 billion, close to the level of HK$44.6 billion in early May before the HKMA's intervention.

Along with the significant surge in the Hong Kong dollar exchange rate, the supply of Hong Kong dollar funds tightened, and various tenors of HIBOR (Hong Kong Interbank Offered Rate) rose sharply. The overnight Hong Kong dollar interbank rate has surged from less than 0.2% to nearly 3%.