The cost of shorting the Hong Kong dollar has slumped to an all-time low, as the currency weakens to the middle of its fixed trading band.
One-month forward points on the city’s dollar, which are added to or subtracted from the spot level to calculate the forward rate, dropped to the lowest on record Monday, according to data complied by Bloomberg.
The Hong Kong dollar consolidated near midpoint of its 7.75 to 7.85 per greenback trading range, retreating from the strong end of the band. That’s after the city’s monetary authority intervened via heavy sales of the local dollar last week, a move that boosted liquidity in the market, lowered borrowing costs and thereby reduced the appreciation pressure on the currency.
“The very flush liquidity is leading to one-month forward points falling to a record low,” said Carie Li, global market strategist at DBS Bank Ltd in Hong Kong. “Then record low forward points make it attractive for market players to reload short Hong Kong dollar positions.”
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“One month Hong Kong dollar forwards will likely rebound in the coming months when Hong Kong dollar demand grows. A return to around -100 is possible,” she said.
One-month forward points for greenback versus Hong Kong dollar fell from about -30 earlier this month to around -200 following recent currency intervention from the city’s authorities.
The flood of Hong Kong dollars in the market is sinking local rates, “crashing” the currency back to the 7.79 level, said Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank Ltd. The surge in cash offering led to the return of short Hong Kong dollar positions, he said, adding that it “drove the front-end Hong Kong FX swap curve lower”.
Cheung expects the Hong Kong dollar to return to 7.77-7.78 range when the currency’s liquidity conditions normalize. The local currency was little changed around 7.79 per dollar on Tuesday while the one-month Hong Kong Interbank Offered Rate was still hovering around the lowest level since 2022 after last week’s slump.
