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Rate hikes to come in Hong Kong

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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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