HKMA Is Blowing Billions To Defend Dollar Peg

• HKMA Is Blowing Billions To Defend Dollar Peg
  by Tyler Durden, https://www.zerohedge.com/
  The Hong Kong Dollar dropped to its weakest against the US Dollar this morning since April 2018. This is a major problem for the Hong Kong Monetary Authority (HKMA) because, as a reminder for some, the Hong Kong Dollar (HKD) is pegged to a tight band of between 7.75 and 7.85 versus the U.S. dollar.
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  And today saw the HKD break below the lower bound of the peg, trading down to 7.8502/USD at its lows… The main culprit behind the local currency’s slump is the carry trade which has been reignited by The Fed hiking rates and potential capital flight out of China/HK.
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  This is an arbitrage, where traders take advantage of differences in prices, selling a low-yielding product (the Hong Kong dollar) to buy a high-yielding product (the US dollar). In this case, the price difference is between the local borrowing cost known as the Hong Kong interbank offered rate (Hibor) and the US borrowing cost known as the Libor.
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  Simply put, traders are borrowing against the low Hibor, selling the Hong Kong dollar to buy the US currency for investments in high-yielding US assets. The difference between the two is widest since March 2019… and that is pressuring the HKD against its lower peg bound.
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