InvestIdeas

52-week range is 7.750 to 7.807

DJ MARKET TALK: USD/HKD Extends Losses; Support At 7.7720

1525 [Dow Jones] The USD/HKD extends losses as 2 major U.K. banks and a Swiss bank sell take profit, says a senior trader at a Chinese bank.

The pair is at 7.7743 vs 7.7746 this morning and 7.7763 late yesterday. He expects the pair to trade in a 7.7720-7.7770 band in the near term.

"Still, the turnover is quite low with less than US$100 million (traded) during the morning session, that's only one-third of the market's usual volume," says another senior trader at a local bank.

He adds, weak local stocks could also weigh on the HKD and the pair's support is tipped at 7.7720. The HSI is down 1.7%.


Source: Dow Jones Newswire

Be directed by dollar
Monday, December 20, 2010

I was surprised to see the Hang Seng Index falling to under 22,700 points recently. The benchmark may drop to 22,200 before the current wave of adjustment is completed.

If the fall was related to Europe's debt crisis or the credit rating of Ireland and Spain, then theoretically European stock markets and the euro should have been affected more severely. Instead the impact was mild.

If we point the finger at China, then how can one explain that the Shanghai Composite Index is hovering above 2,800 points?

Therefore, the only possible explanation is the role played by hot funds. This can be reflected by how the USD/HKD pair recently rose again to 7.77.

In the past year the Hong Kong stock market and the USD/HKD trend often took opposite extremes. When USD/HKD rose - that is, the local currency weakened - the Hong Kong stock market declined.

But when USD/HKD retreated - that is, the local dollar strengthened - in turn the local market improved.

Hence, it is better to use the direction of USD/HKD as a point of reference.

The outflow of funds from the local stock market strengthened the USD/HKD, therefore the HSI has plunged by more than 1,000 points.

I believe this has to do with end- of-year activities and should not be a cause for concern.

Yet the factors attributed to year- end activities and reduced fund flows have already caused the Hong Kong stock market to fluctuate in the short term by 5 percent.

Next year, whether massive hot funds flow in or out, I believe short- term fluctuations in local equities will vary more than 10 percent.

In the face of a high turnover of hot funds, the SAR government is still adopting a laissez-faire attitude to maintain Hong Kong's status as a financial hub.

But investors must not sit idle. We must analyze the impact of fund flows on our city and adapt.

http://www.thestandard.com.hk/news_deta ... 01220&fc=1

Turnover on the HSI was also down to about HK$60b and the HKD is also weak. So where's the hot money ?


USD/HKD Spot 7.7786 +0.0024

HONG KONG (Dow Jones)--The Hong Kong dollar fell against the U.S. dollar Monday, amid a decline in local shares as investors sought the safety of the U.S. currency amid renewed tensions on the Korean peninsula.

Traders said they expect the U.S. dollar to test psychological resistance of HK$7.7800 in the near term. That level was last hit Sept. 1.

Where's the hot money ?

Hong Kong Dollar Drops To 3-day Low Against U.S. Dollar

(RTTNews) - The Hong Kong dollar fell to a 3-day low of 7.7745 against the U.S. dollar in Asian session on Thursday. At present, the pair is trading at 7.7734, compared to Wednesday's close of 7.7708.

On the downside, 7.786 is seen as the next target level for the Hong Kong dollar.



http://www.rttnews.com/Content/Currency ... 20526&SM=1

thought HK dollar is pegged to the US, no?

i thot HKD is tied inextricably to RMB

so much for my knowledge of world currency

peter wrote:thought HK dollar is pegged to the US, no?

Yes, it's pegged to the USD but there's a range for that trade.

So by looking at the exchange rate, one can tell whether hot money is flowing into or leaving Asia ....

Hot money leaving Asia ..

HK Dollar Down On Local Shares Fall, Demand For Offshore Yuan

HONG KONG (Dow Jones)--The Hong Kong dollar was down against the U.S. dollar late Thursday amid a decline in the local stock market and strong corporate demand for the Chinese yuan.

Traders said the U.S. dollar could test resistance of HK$7.7830 Friday, but profit-taking pressure will likely return it to around HK$7.7780.


Source: WSJ

It's "Heads You Win, Tails You Don't Lose" with This Currency By Tim Staermose

HONG KONG: One of the most interesting things going on here in Hong Kong at the moment is the gradual displacement of the U.S. dollar, and even the local Hong Kong dollar, by the Chinese yuan.

Walking around town, the signs are obvious: from shops that gladly accept Chinese yuan cash for the goods they sell, to the money changers that now ALL display the Hong Kong dollar/Chinese yuan cross-rate much more prominently than the U.S. dollar/Hong Kong dollar cross-rate.

In many ways, this is a live economic experiment.

Hong Kong has long had one of the world's freest, most sophisticated economies; residents are free to choose what currency to accept (and save), whether HK dollars, U.S. dollars, Chinese yuan, gold, or anything else.

Multi-currency bank accounts are the rule rather than the exception here. And you can switch freely between all of them with a few mouse clicks or a phone call. This is one of the reasons why Sovereign Man founder Simon Black has always been so keen to recommend banking in Hong Kong.

Yuan-denominated deposits in Hong Kong banks have more than TRIPLED this year as people look for ways to protect their purchasing power. Because the Hong Kong Monetary Authority pegs its currency to the U.S. dollar, Hong Kong ends up importing U.S. inflationary monetary policy.

This is acutely felt. Since Hong Kong is little more than a barren rock, nearly EVERYTHING is imported… so prices are rising in accordance with U.S. dollar inflation.

To guard against this constant loss of purchasing power, many of Hong Kong's residents are converting their savings to Chinese yuan. While the Chinese yuan closely shadows the U.S. dollar, it has steadily appreciated and is perceived to have significant future upside should the Chinese ever allow it to appreciate more quickly.

U.S. monetary inflation makes it inevitable that the Hong Kong Monetary Authority will come up with some sort of a scheme to either peg the Hong Kong dollar to the yuan (rather than the U.S. dollar) or perhaps even replace the Hong Kong dollar with the yuan altogether.

This would be a HUGELY popular move. Hong Kong is one of the few places on Earth with a net savings rate. The loan-to-deposit ratio of its banking system, for example, stood at 81.7% at the end of March, meaning there are only 81.7 cents lent out in Hong Kong for every $1 on deposit in the banks.

Consequently, savers would love to see the Hong Kong dollar revalued higher by pegging it to the Chinese yuan at the current yuan/dollar rate of about 6.50, rather than the current HK dollar/U.S. dollar peg of 7.80.

What's more, a move to re-peg the Hong Kong dollar is anything but far-fetched when you consider that Hong Kong's "net savers club" includes the government, which is sitting on a HUGE surplus. So much, in fact, that the government recently announced it's handing back HK$6,000 (US$770) to each Hong Kong permanent resident.

Bottom line, the clock is ticking on a Hong Kong dollar revaluation. The yuan is a much better cultural and economic fit, and this brings me to the crux of today's letter:

If you have significant expenses to meet in U.S. dollars, you may be uncomfortable taking on currency risk by parking your money in a more volatile foreign currency such as the Aussie dollar or Canadian dollar. Let's face it, they do have periods where they fall significantly versus the greenback.

By holding savings in Hong Kong dollars, though, you will have minimal downside risk if the Hong Kong Monetary Authority keeps the status quo and maintains the U.S. dollar peg. Your Hong Kong dollars will always buy the same amount of U.S. dollars they buy today.

But you will have a free "call option" in case the Hong Kong dollar is revalued higher. It's a bit like a "heads you win; tails you don't lose" situation, and that's EXACTLY the kind of trade I have dedicated my professional life to uncovering.


Source: Daily Wealth

Bill Ackman of Pershing Square Capital Management, is betting that HK, will repeg the HKD to a newer range, within 12 to 18 months.

If his trade proves correct ( HKD and Options on the HKD ), it will return 100 times his bet.

Source: CNBC