Hong Kong Dollar Jumps Most in a Month on Corporate Demand

(Bloomberg) -- The Hong Kong dollar rallied the most in a month amid demand for the currency by banks hoarding cash for the end of the month and by companies paying out dividends.

The exchange rate rose as much as 0.06 percent to HK$7.8428, its strongest level since April 24 and moving further away from the weak end of the trading band with the greenback, where it’s been stuck for weeks. The Hong Kong Monetary Authority has spent $2.4 billion in the past two weeks to defend the currency as local borrowing costs lagged their U.S. equivalents, making it profitable to short the currency.

Companies will pay HK$167 billion ($21 billion) of dividends in June, after doling out HK$80 billion this month, according to Standard Chartered Plc. The one-week interbank rate climbed the most in a month on Friday. Upcoming mega IPOs by Xiaomi Corp. and China Tower Corp. are likely to draw huge retail demand, driving short-term rates higher and bolstering the local dollar.

“Investors are unwinding their short wagers and taking profit,” said Carie Li, a Hong Kong-based economist at OCBC Wing Hang Bank Ltd. “The currency will weaken in the first half of June, triggering HKMA intervention again, as the month-end effects fade, and will again strengthen in the second half amid IPOs.”

Read: HKMA Says It’s Highly Likely HKD to Remain Weak in Near Future

The Hong Kong dollar pared its gain to 0.02 percent as of 5:27 p.m. local time, trading at HK$7.8463. The aggregate balance of interbank liquidity stood at HK$109.5 billion Friday, compared with HK$179.8 billion before the HKMA started intervention last month.

©2018 Bloomberg L.P.