For the first time since 2019, the currency has fallen to 7.8020 per dollar.
For the first time since December 2019, the Hong Kong dollar has fallen into the weak half of its trading range, as the emergence of a new coronavirus variant has eroded appetite for risky assets.
The exchange rate dropped to 7.8020 per dollar, breaking through the midpoint of the acceptable trading range of 7.75 to 7.85 against the US currency. In November, the Hong Kong dollar fell 0.3 percent, its largest monthly loss since February 2020.
The Hong Kong currency is under increased selling pressure.
The selling pressure on the Hong Kong currency has increased this month as the dollar has risen on bets that the US Federal Reserve will tighten policy in response to strong US growth data.
However, the emergence of a new variant of the coronavirus – Omicron – weighed on the Hong Kong dollar, raising concerns about the global economy’s recovery.
“It doesn’t help that Omicron is shrouded in mystery.” We do not expect the Hong Kong dollar to fall quickly to 7.85 at this time. “Unless the dollar strengthens significantly, this will most likely be a gradual move,” said Irene Chung, currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore.
The Hong Kong dollar’s depreciation has been accompanied by the loss of other non-haven assets. Among the G10 currencies, the Australian and New Zealand dollars fell on Tuesday, with the Thai baht leading the way in emerging Asia.
The sell-off accelerated after Moderna Inc.’s CEO stated that existing vaccines may be ineffective against the new Covid-19 mutation.
A move above 7.8 brings the Hong Kong dollar closer to the weak end of its trading range, a breach of which would necessitate intervention by local monetary authorities. Increased debt issuance by the city’s central bank, on the other hand, may deplete interbank liquidity and make it less profitable for traders to short-cut Hong Kong dollars.
The Hong Kong dollar remained virtually unchanged on Tuesday, trading at 7.7997 per dollar.