Hong Kong could again weaken its dollar

Is intervention necessary now?

Analysts believe the Hong Kong Monetary Authority could again intervene to stabilize the dollar following three interventions last week when the local currency hit its upper trading limit against the US dollar.

HKMA sold US$855 million in the two interventions on June 18 in the forex markets, saying the move was needed to maintain the stability of the city's currency. It sold dollars worth US$603 million on June 21 to curb the local unit's rise that is being fuelled by weeks of capital inflows from overseas.

HKIA is obliged to act by buying or selling the Hong Kong dollar whenever it touches either side of the HK7.75 to HK7.85 trading band against the US dollar, to which it has been pegged for 29 years.

HKMA said it will remain closely vigilant of market developments and act in accordance with the currency board mechanism to maintain the exchange rate stability of the Hong Kong dollar.

HKMA made multiple interventions to weaken the dollar in 2008 and 2009 at the height of the financial crisis, as traders moved into the Hong Kong dollar, which was seen as a safe haven.