Hong Kong Dollar Ties for Weak End of Trading Band Amid Carry Trade Frenzy
The Hong Kong dollar is being pushed toward its weak end of its trading band against the US dollar due to high demand for carry trades.
Data from the Depository Trust and Clearing Corp shows that four times as many US dollar-Hong Kong dollar call options were traded compared to puts on Wednesday, with contracts valued at $100 million or more. Call options gain in value if the currency pair advances, while puts rise if the opposite occurs.
Nathan Sinclair, head of foreign-exchange options Asia at Crédit Agricole CIB in Hong Kong, said that demand for short-dated US dollar-Hong Kong dollar call options continues due to the attractive carry. 'Less demand has been seen for longer-term tenors,' he added.
The Hong Kong dollar ended Wednesday little changed at HK$7.8409 to the US currency even as the greenback weakened versus most of its major peers. The local currency remains within striking distance of HK$7.85, the weakest level permitted under Hong Kong’s linked exchange rate system, which it last touched a year ago.