The Hong Kong dollar (HKD) has been under pressure trading around the weak end of its convertibility undertaking (7.75-7.85) vs. USD consistently since early May. Economists at TD Securities expect the USD/HKD pair to test 7.82 in the near-term.

HK to eventually align the exchange rate with the CNY

“We think there is scope for USD/HKD spot rate to move lower in the short term, with scope for a test of 7.82.”

“The currency board mechanism means that Hong Kong will not escape higher rates and likely ongoing bouts of pressure on the HKD especially as the Fed continues to tighten policy.”

“We still think its highly unlikely that the HKMA dismantles the peg mechanism anytime soon. However, we maintain our view that eventually Hong Kong aligns the exchange rate with the CNY though we still think this is a long way off and only likely as China moves more significantly towards capital account convertibility.”