Rate hikes to come in Hong Kong

and other FX market news.

Contents

    What’s new?

    The one-year HKD swap rate reached its highest since 2018 at 2.3%. That means any bank can swap overnight rate VS swap rate (2.3%) over one year. The swap rate can go higher if the FED policy becomes more aggressive in its attempt to curve inflation. The HKMA has already mopped HK$ 18 billion last week and is expected to drain an additional HK$ 125 billion this year. Our precedent newsletter shows that the interest rate differential between Hong Kong and the U.S is still wide, allowing investors to keep borrowing HKD and then sell it versus USD. As more and more market participants get into this arbitrage, HKD rate will finally start to rise, decreasing the selling pressure off the local currency.

    The JPY might weaken to 150

    The USD/JPY pair might reach 150 before the end of the year as divergence in monetary policy keeps steady. As long as BOJ keeps the same narrative, there is little change in seeing the Yen getting stronger. On the other side, falling stocks in the U.S and market turmoil should keep benefiting the U.S treasury and might ultimately benefit the Yen and interest gap shrink. This is the view of Australia & New Zealand Banking Group Ltd, which sees the JPY rebounding to 125 per USD before year-end.

    What’s in the pipe?

    • China loan prime rates Friday

    FX rates

    USD/JPY @ 127.99 - bullish trend

    EUR/USD @ 1.0573 - Bearish trend

    GBP/USD @ 1.2400 - Bearish trend

    AUD/USD @ 0.7063 - Bearish trend

    USD/CNH @ 6.6845- Bullish trend

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