Today’s Hong Kong Dollar Curb Asymmetrical Basket Forecast is not that bad by any stretch of the imagination! The Hong Kong currency trade is a good example. The HKMA has taken measures that have weakened the USD currency and also has strengthened the Hong Kong Dollar.
The currency trade is not in question. But, the two main players are now the same, so to speak. And so the exchange rate is affected by the foreign money flows into China and out of China as well. The two currencies are now moving in opposite directions.
On one hand the Hong Kong Monetary Authority (HKMA) and the People’s Bank of China (PBOC) have both announced some easing measures to prop up the markets and reduce financial risk. This will help stabilize the Hong Kong dollar value, while reducing the FX risk.
Both the currencies are weakening against other currency pairs. This is mainly because of the weak trade deficit between both countries as well as the weaker US Dollar.
The HKMA has taken measures like limiting the deposit in the stock market as well as a cap on the dollar account. However, this does not affect the USD value directly but it indirectly affects the exchange rate as the US dollar is not allowed to be held in the accounts at all.
Meanwhile, the PBOC has also announced that the foreign exchange market will see some further liberalization measures with regards to offshore remittances. The two central banks will work together to provide greater foreign exchange liquidity and to ease the FX risk factor.
The Forex trading market in the city has also been affected. However, not in the way that we’ve all been led to believe. In fact the foreign money flows in and out of the country has been stable. Foreign investors do not want to invest too heavily in the Hong Kong currency due to the instability in the political system.
The HKMA has also been pushing for an even tighter grip on the interbank market and a more efficient forex regulatory framework. which would prevent manipulation of the market and the devaluation of the currency. While this might not directly affect the foreign money flow into or out of the country, the weakened value of the Hong Kong dollar might rub off on the foreign currency pair.
The other major trading partner in the region is the Bahamas. In fact the Bahamas is currently the second largest holder of the Hong Kong dollar in terms of monetary deposits. With the recent announcement by the government of the Bahamas, this might well continue to be the case in the coming years.
The Bahamas may also be looking to expand their trade ties with the USA. The political situation in the US has become increasingly unstable over the past year, and both sides are working to minimize their trade exposure to the other. It’s quite likely that the two central banks of the two countries will soon start negotiating a trade agreement as well.
While there is no official word from the USA, there have been signs that the island of Hawaii is considering liberalizing their regulations on foreign currency transactions. The island of Hawaii has long since used the US dollar to trade with other countries.
If the US government were to follow suit in the Bahamas, it would open up a whole new trade opportunity in the Asian region. If you were to put it another way, it would provide access to the US for the Asian financial markets to the Asian economies including Hong Kong.
The potential for Hong Kong to trade more heavily with the rest of the world is very high. There are many benefits to doing so.