The Hong Kong dollar had its worst one-day fall in more than a decade yesterday
The Hong Kong dollar had its worst one-day fall inmore than a decade yesterday as investorsspeculated that it might have to adjust its long-running peg to the US dollar.
It slipped 0.25 per cent against its US counterpart to HK$7.7886, a rate last reached in 2011but still within its permitted range of HK$7.75 to HK$7.85. It was the currency’s biggest one-day slide since October 2003.
The fall was another sign of the renminbi’s volatility spilling over into other markets. Last weekbets that the Chinese currency would weaken more sharply than expected pushed the offshorerate to its weakest against the dollar in more than five years.
Buying by the People’s Bank of China this week strengthened the currency, sending offshorerenminbi-denominated borrowing rates rocketing.
Strategists said the Hong Kong dollar’s weakness was a result of investors betting thatChina’s slowdown, and its softer currency, could lead the city to reconsider its regime.
Zhou Hao, strategist at Commerzbank, said: “While we don’t doubt the credibility of the pegregime in the foreseeable future, the abnormal movements of Hong Kong dollar reinforcethe risk-averse sentiment triggered by the recent China market turmoil.”
The double blow of rising US interest rates and China’s economic slowdown is expected toweigh heavily on Hong Kong’s economy this year. Analysts at HSBC recently cut their growthforecasts for the city from 2.2 per cent to 2 per cent.
When the Hong Kong dollar last slipped significantly, in August after China’s unexpected 2 percent devaluation, speculation that the city might change its peg was swept aside as investors,worried about mainland weakness, swapped renminbi deposits for Hong Kong dollars,strengthening the latter.