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USDHKD peg under pressure

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  1. #41

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    Quote Originally Posted by traineeinvestor
    Not sure why you think my statements are contradicting since we're saying the same thing but, in any event, your explanation is much better than mine.

    One thing I would add is that the tools which the HKMA can use to defend the peg and make it costly for short sellers to borrow include raising interest rates - they need to be a bit careful with that one given that most HKD mortgages are set at floating rates.
    likely more because of your statement "when it happens the impact will most likely be significant"...
    been doing alot of analysis and scenario study of what might happen (to the company i am working at now) and our thought is, if HKMA can afford the peg, then the break will not be significant as everyone would have been prepped the peg will go. The only time it will be significant is if HKMA is unable to defend the peg.. which has been concluded to be unlikely..

    generally hiking of rates happen on the short dated, 1day, 1week, etc.
    it might affect 1m/3m hibor for a short period but it is not likely to prolong... or at least that's what we have seen.
    traineeinvestor likes this.

  2. #42

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    For financially illiterate people like me, what would happen to the HKD if it depegs? Should I start moving my currency back to Canadian or buy rmb or what?


  3. #43

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    Quote Originally Posted by freeier
    likely more because of your statement "when it happens the impact will most likely be significant"...
    been doing alot of analysis and scenario study of what might happen (to the company i am working at now) and our thought is, if HKMA can afford the peg, then the break will not be significant as everyone would have been prepped the peg will go. The only time it will be significant is if HKMA is unable to defend the peg.. which has been concluded to be unlikely..

    generally hiking of rates happen on the short dated, 1day, 1week, etc.
    it might affect 1m/3m hibor for a short period but it is not likely to prolong... or at least that's what we have seen.
    Thanks for the explanation.

    To be honest it's hard to predict what will happen if the peg breaks (or is adjusted/disbanded). Today the pressure is on the downside but IIRC a few years ago there was speculation it would break to the upside!

    FWIW, I just did a basic Google search on the HKD/USD Peg and (roughly) and the hits on the first two pages were roughly divided into articles speculating or predicting the peg would break and those explaining why that was unlikely or wouldn't happen.

  4. #44

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    @traineeinvestor

    Agree with you the impact is not predictable.
    Very generically we can say breaking to upside or breaking to downside, but the impact of these two will be vastly different.

    Breaking to downside, i.e. USDHKD > 7.85, likely will happen if HK is under very high stress economically and financially. It probably will happen after a certain period of defending the currency. Something like what George Soros did to the bank of England. If that crack happens, it will really sweep the Asia financial market like the 1998 Asia financial crisis and we will see HSI easily crack 20/30%.

    Breaking to the upside, USDHKD < 7.75, will just be some kids play. It probably happen if CNY strengthens too much and HK SAR decided that pegging to USD is too volatile for the country. But since it is a 'choice' by HKMA whether to depeg or not, it will be managed orderly and we might even see stock markets going up because of better rationalizing of currencies.

    So the bet is then which side of 7.80 will the crack occurs. Like said, HKMA and PBOC has too much firepower to allow a crack above 7.85. They are not likely to let that happen. Rates will go up sharply but end of the say HKD shld still hold below 7.85.
    Kyle Bass's position and article might sound like big stuffs, but i don't think he studied sufficiently of the HKD exchange rate system to start his positions.


  5. #45

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    Quote Originally Posted by freeier
    @traineeinvestor it will be managed orderly .
    Unless the HKMA staff is unable to get in to work for a few days due to pitched street battles between opposing groups and armored vehicles /Joking (mostly)

  6. #46

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    Breaking to downside, i.e. USDHKD > 7.85, likely will happen if HK is under very high stress economically and financially. It probably will happen after a certain period of defending the currency. Something like what George Soros did to the bank of England. If that crack happens, it will really sweep the Asia financial market like the 1998 Asia financial crisis and we will see HSI easily crack 20/30%.
    Any possibility of breaking to downside could also be very systematic and managed orderly!! Thinking Trade war going awry turning into currency war and China decides to devalue CNY for considerably long time, in turn also decides to unpeg HKD and devalue it!!!

  7. #47

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    Quote Originally Posted by nivantj
    Any possibility of breaking to downside could also be very systematic and managed orderly!! Thinking Trade war going awry turning into currency war and China decides to devalue CNY for considerably long time, in turn also decides to unpeg HKD and devalue it!!!
    agree on this. if used as a trade weapon then it could very well be.. but kind of think that if devalued orderly, financial market will be spooked.. just to what extend is harder to say...

  8. #48

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    Quote Originally Posted by Apjace
    Unless the HKMA staff is unable to get in to work for a few days due to pitched street battles between opposing groups and armored vehicles /Joking (mostly)
    Given that the HKMA requires all banks to have contingency plans in place for just this type of event it would be very surprising if the HKMA didn't have similar arrangements in place.

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