Recently, the Hong Kong dollar (HKD) has surged in strength, and during the New York trading session on Saturday, May 3, it triggered the strong-side Convertibility Undertaking of the Linked Exchange Rate System at HK$7.75 to US$1. This prompted the Hong Kong Monetary Authority (HKMA) to intervene in the market, absorbing as much as US$6.005 billion in sell orders and injecting HK$46.539 billion into the system. This marks not only the first time since 2020 that the strong-side convertibility guarantee has been activated, but also the HKMA’s largest single-day capital injection on record.
Multiple Drivers Behind HKD Strength
According to an HKMA spokesperson, the recent strength of the Hong Kong dollar has been driven by several factors. First, equity investment activities have led to increased demand for HKD, particularly amid a surge in large IPOs, where investors need to convert funds into HKD for subscription. For instance, the IPO of $AUNTEA JENNY(02589)$ attracted margin orders totaling HK$92.1 billion—an oversubscription of nearly 3,376 times—freezing a significant amount of market liquidity and becoming a key force behind the HKD’s rise.
Secondly, regional currencies such as the Chinese yuan and Japanese yen have broadly appreciated against the US dollar, indirectly supporting the HKD. Meanwhile, recent U.S. policies, such as the implementation of "reciprocal tariffs," have shaken investor confidence in U.S. assets, prompting some capital to shift into HKD as a risk-averse move. This capital flow is reflected not only in the forex market but also in financial indicators such as the Hong Kong Interbank Offered Rate (HIBOR) and the aggregate balance of the banking system.
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