HKMA intervenes to curb HK dollar strength after capital inflows

HONG KONG Sat Oct 20, 2012 2:43am EDT

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HONG KONG Oct 20 (Reuters) - The Hong Kong Monetary Authority (HKMA) stepped in to the currency market on Saturday for the first time since December 2009 as capital inflows strengthened the Hong Kong dollar, causing it to hit the top end of its trading range.

The HKMA sold $603 million worth of Hong Kong dollars at the strong-side of the trading range of HK$7.75 to a U.S. dollar in a move that will lift its aggregate balance -- the sum of balances on clearing accounts maintained by banks with the authority -- to HK$153.3 billion on Oct. 24.

"The recent increase in demand for the local currency is related to a less strained European market, weakness in the USD and declining US interest rates, which have prompted capital inflows into currency and equity markets in the region," an HKMA spokesman said in a statement.

Traders said the recent strength in the Hong Kong dollar against the U.S. dollar was in line with other Asian currencies because the U.S. Federal Reserve's quantitative easing measures had weakened its currency.

The Hong Kong dollar is pegged at 7.8 to the U.S. dollar but can trade between 7.75 and 7.85 to the U.S. dollar. Under the currency peg, the HKMA is obliged to intervene when the Hong Kong dollar hits 7.75 or 7.85 to keep the band intact.

"The appreciation trend of RMB recently has attracted some money flows into Asia, including Hong Kong, to buy stocks and properties," said Kenix Lai, senior market analyst at Bank of East Asia, referring to the strength in China's renminbi that hit a record high against the U.S. dollar this week.

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