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Rebounds As Local Yields Surge, HK Budget Delivered On Wednesday

HKD

USD/HKD is down 0.20% to the 7.8300 level, moving the pair away from the weak side of the peg band (7.75/7.85). This is in line with the broader pull back in USD sentiment throughout the region, while the sharp rise in HK money market rates has been the other positive. Last week's HKMA intervention has drained liquidity, with the aggregate balance now down to HK$77bn (
-HK$18.9bn last week). The balance is still above early 2020 lows.

  • Overnight Hibor rose 184bps to 3.07%,1 month by 27bps to 2.61%. 3 month is now at 3.55%, up from 3.46% on Friday. Outright yield levels are still comfortably in the USDs favor, but today's move has halted the downtrend in the spread against HKD.
  • The recent spot move in USD/HKD to the weak side of the band didn't generate much of a reaction in the risk reversal space, with the 1 month and 3 month generally trending lower through Feb, with metrics also below 0 at this stage.
  • On the data front, Q4 GDP revisions print on Wednesday, but there will be larger focus on Hong Kong's budget, due the same day.
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