Hong Kong Defends FX Peg for Fourth Time in Two Weeks

Hong Kong authorities intervened for the fourth time in two weeks to prevent the city’s currency from weakening beyond its official trading band, after previous efforts failed to drain enough liquidity to push up funding costs.

The Hong Kong Monetary Authority, the Chinese financial hub’s de-facto central bank, purchased HK$13.3 billion ($1.7 billion) of the local dollar, according to its Bloomberg page on Friday. The HKMA’s three previous of currency defense had cost it a total of HK$59 billion, according to Bloomberg’s calculations of official data.

The continued intervention shows the unabated pressure on the HKMA to deal with the repercussions of its earlier efforts to the currency, when it had rallied along with peers against the dollar. Its earlier sales of the Hong Kong dollar flooded money markets and caused local rates to tumble versus those in the US, putting even more pressure on the currency. The HKMA is now seeking to address that by withdrawing liquidity from the financial system.

The HKMA maintains the local currency in a trading range of HK$7.75 to HK$7.85 against the dollar. And to achieve that, the de-facto central bank absorbs flows by taking the opposite side of trades once they reach either end of the band.