Another busy day for USD/HKD markets,.....>

HONG KONG: Another busy day for USD/HKD markets, with turnover very high for a

second consecutive session. Spot USD/HKD remains weak, holding much of

yesterday's losses although has failed to mark a new cycle low. The primary

catalyst for yesterday's HKD squeeze, the sharp rise in HIBOR, remains

supportive, with the 3m fix today up another 18bps to the highest since November

2008. Nonetheless, many analysts continue to see the funding squeeze as

temporary, with OCBC, DBS Bank and Credit Agricole among others highlighting the

HK IPO pipeline (Alibaba sale) and quarter-end seasonal factors behind the rise

in HIBOR, rather than political tensions emerging from the widely broadcast

protests (although this may be having a contributory effect).

-Options markets are mirroring spot, with total USD/HKD options notional well

over 5 times the average. Despite the recent upside in HKD spot, the bias among

currency hedging is against a weaker HKD, with close to $2.50 traded in USD/HKD

call options for every $1 in puts so far Thursday. Positions that become

profitable on a move north of 7.85 in USD/HKD have been particularly popular,

with over $1bln in trades lodged this morning alone.