HKD: USD/HKD To Fresh Cycle Highs, As Ample Liquidity Offsets USD Weakness
Spot USD/HKD is tracking at fresh highs in the first part of Monday trade, the pair last near 7.8370, leaving HKD bucking the former Asian FX trend seen elsewhere versus the USD. This is fresh highs in the pair back to April 2024. if we break above 7.8400, the natural upside target will be the top end of the 7.75-7.85 peg band.
- The bias in Hibor rates is still to the downside, the 1 month back to 0.57% today, while the 12 month is back to 3.03%, from 3.09% on Friday. This is keep liquidity against HKD in the near term.
- Equally, there is little sign of a turn around in forward points, with the 12 month now beyond -1300pts.
- Implied 1 month vols have made it to fresh cycle highs, last near 2.15%. We have to go back to 2016 levels for higher levels on this metric. As we were only at the bottom end of the band a short while ago such a rapid turnaround is helping keep implied vols elevated. If we get to the top end of the band there will naturally be HKMA intervention, which in turn will impact liquidity and HKD.
Fig 1: USD/HKD 1month Implied Vols At Multi Year Highs
Source: MNI - Market News/Bloomberg
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