USD/Hong Kong dollar trading | US dollar / Hong Kong dollar
Hong Kong dollar
Hong Kong is one of the most attractive countries with a market economy for foreign investment. Its stock market is the 6th largest and its exchange-traded fund has become one of the largest in the world with $442 billion in reserves at the end of 2020. >
Hong Kong is also widely seen as the gateway to mainland China, and despite the country's best efforts, its fate is increasingly linked to the Asian superpower. Therefore, any geopolitical event related to China can affect the volatility of the US dollar / Hong Kong dollar.
The Hong Kong dollar (forex code HKD) is in many ways an unusual global currency, as it is almost an "extension" of the city-state of Hong Kong, which is officially part of China, but which in many ways can be run independently.
The Hong Kong dollar is also one of the few currencies that may become obsolete in the future, provided that free trade in the Chinese yuan is allowed, as it no longer makes sense to trade the dollar from Hong Kong.
The Hong Kong dollar is not freely tradable and is administered by the Hong Kong Monetary Authority. Currently, its exchange rate regime is a fixed exchange rate system, which means that it trades in a very tight range against the US dollar.
The Hong Kong dollar interest rate is based on an automatic exchange rate stability mechanism. Since the issuance of Hong Kong dollars is possible only if there is an equivalent of US dollars on deposit in issuing banks, the current issue of Hong Kong dollars is actually backed by the dollar.
Hong Kong history
In 1841, Hong Kong was established as a free trade port, and at that time foreign currency was in free circulation, and there was no single currency for the country itself. Although the British government tried to introduce its own currency in the colonies, it abandoned this idea in the 1960s, and in 1863 London issued a special currency for use in Hong Kong under the dollar system.
In 1935, Hong Kong abandoned the silver standard and introduced a notched peg to the British currency, the pound sterling, marking the moment when the Hong Kong dollar became a currency in its own right. When the country was occupied by the Japanese in the 1940s, the Japanese yen became the only legal tender in Hong Kong, but the local currency was issued again after liberation.
The Hong Kong dollar was pegged to the US dollar in 1972 and then again in 1983 after a short period of free float.
Hong Kong economy lags behind HKD
Despite being part of China for many years, Hong Kong is still largely administered as an autonomous region with a small economy of its own, ranking 39th in the world in terms of GDP. Hong Kong's GDP growth over the past 20 years has been rather erratic; however, in general it exceeded 5%, and sometimes reached 10%.
Inflation rates have also been erratic, up to 10% in 1995, but at the turn of the century they remained negative for more than four years. Recently, interest rates in HKD have been quite low. However, developers' debts issued by the country's banks have an unstable and significant impact on the Hong Kong economy.
Hong Kong has long been a key financial and commercial center in Asia thanks to low taxes. Nearly all of the world's largest securities firms and banks have established offices in the country, and the Hong Kong Stock Exchange is ranked fifth in the world by market capitalization.
It is not surprising that the country's economy is largely service-oriented. Although there is a manufacturing industry in Hong Kong, over 80% of the workforce is employed in the service sector, including hospitality, financial services, retail and trade. . According to one school of thought, as Shanghai becomes an increasingly important financial center, Hong Kong must eventually lose its importance. However, there are no signs yet that this is happening.
What factors determine the exchange rate of the Hong Kong dollar?
Because the Hong Kong dollar is somewhat different from other currencies, its economic factors are also different. While economic data such as GDP, current account, trade balance and inflation are of some importance, they are only important up to a point as the Hong Kong dollar can only trade by a small margin.
Because of the interweaving of the economies of China and Hong Kong, any "black environment" raid on Hong Kong will inevitably fail. HKD is not a particularly popular currency, because while large banks with powerful computers can make some profit from minor fluctuations in the price of the currency, the narrowness of the range deters most small speculators from investing.
Therefore, most Hong Kong dollar transactions are for commercial or carry trade transactions only. Currently, the Hong Kong dollar has a low interest rate, which makes it an attractive currency for carry traders. You can borrow Hong Kong dollars cheaply and then use the money to buy higher yielding debt in a country like New Zealand or Australia.
There is a strong possibility that in the long term the Hong Kong dollar will cease to be relevant or even disappear. It is possible that at some point the currency control over the Chinese yuan will be significantly removed or weakened, at which time the Hong Kong dollar will cease to play a key role.
History of the US dollar/Hong Kong dollar
In 1983, the Hong Kong dollar was pegged to the US dollar. After months of turmoil, the Hong Kong dollar hit an all-time low of HK$9.6 per dollar. As a result, the country abandoned its floating exchange rate and pegged the Hong Kong dollar to the US dollar in an attempt to stabilize the currency.
USD/HKD is typically trading today between the tight 7.75 and 7.85 limits set by the Hong Kong Monetary Authority (HKMA). The fixed system is being adjusted to keep the HKD exchange rate stable.
The couple has experienced turbulent times in its history, and maintaining parity has not been easy. Low interest rates in the US created problems for the HKMA, which was forced to match these rates. As a result, Hong Kong property prices and the exchange rate have risen sharply in recent years.
USD/Hong Kong dollar exchange rate chart
Influence on the movement of USD/HKD
The USD/HKD pair is different in that many of the economic factors that affect the movement of most currency pairs have a limited impact on the USD/HKD pair. Labor market conditions, interest rates and inflation have a moderate impact on the pair as it operates within a fixed, predetermined range. Therefore, many speculative investors are disappointed, and making a profit requires skill and patience.
Fortunately, some factors still affect the USD/HKD price:
- Economic growth. The strength of an economy is often reflected in the value of its currency. When the Hong Kong economy is strong, the Hong Kong dollar appreciates against the US dollar. Conversely, a weaker Hong Kong economy will cause the Hong Kong dollar to fall against the US dollar.
- China. Hong Kong is closely linked to China, which means that changes in the value of the Chinese Yuan can greatly affect the value of the US dollar/Hong Kong dollar. We saw this during the Asian financial crisis when the HKD hit its upper limit several times. Usually currencies move in one direction.
- Political stability. Political unrest and important events can have a huge impact on the value of a currency. Generally speaking, stability is likely to attract foreign investment, and an increase in investment will lead to an appreciation of the currency.
- Market sentiment. If the value of the US dollar is expected to fall, demand will decrease as investors generally need more of the currency to make a profit. The fall in value could mean more expensive exports and reduced competitiveness in global markets. Hong Kong is dependent on both imports and exports, so any change is strongly felt.
Benefits of trading USD/HKD
- Chinese Economy. Hong Kong's close ties to China mean that the Hong Kong dollar is an affordable way for many to participate in the Chinese economy. China absorbs more than half of Hong Kong's exports and is currently the world's second largest economy. China's position on the world stage attracts many forex traders.
- Risk/reward ratio. Considering the USD/HKD peg, the risk/reward ratio is favorable. The lower limit guarantee means that traders can operate within relatively safe parameters. However, this means that making significant profits can be difficult.
- Liquidity. The forex market usually offers a very liquid environment with low spreads between bid and ask prices. This makes Forex trading more popular than assets like stocks and cryptocurrencies.
- Costs. Trading costs are usually included in the spread and pips in the forex markets, which means that traders usually do not have to consider additional commissions.
Disadvantages of trading USD/HKD
As with any currency pair, USD/HKD trading is risky:
- Rebuilding. If the HKD readjusts against the US dollar or even the Chinese yuan, this would have serious implications for investment. Traders need to stay up to date with the latest financial news and conversion forecasts. Risk and capital management strategies should also be implemented.
- Leverage. Trading with leverage is popular in the forex market, but comes with increased risk. Margin trading should only be used by traders who are comfortable with more risk.
- Political interference. Political unrest, as the recent riots in Hong Kong have shown, could have serious repercussions on the couple's valuation. Keep an eye on Chinese government announcements to keep up with trends.
USD versus HKD strategy options
When it comes to USD/HKD strategy, different tactics work for different people. Capital requirements, timing, and risk tolerance all play a role. Whether you choose to use historical exchange rate data and monthly averages or real-time charts and forward rates, different tools are suitable for different traders.
For those less interested in trading using historical USD/HKD exchange rates, charts, charts and real-time forecasts, financial news is an excellent source of information to make informed investment decisions. Economic reports on the latest data on inflation and interest rates, GDP and consumer sentiment can influence the movement. Traders need to stay up to date with updates in order to respond quickly. Those who make the move first have more chances to declare their advantage.
Reuters, Yahoo Finance, online converters, TradingView and MarketWatch are just some of the resources available to traders. They provide live Forex market information, forecasts, daily USD/HKD swap buying and selling rates and comments.
Carry trading is a popular strategy that allows investors to benefit from low interest rates. Traders borrow more in currencies with lower interest rates and invest in more profitable markets. Demand creates an influx of capital that strengthens the currency.
The recent increase in interest rate differentials between Hong Kong and the US has led to an increase in the number of investors entering new carry trade positions. Relatively low interest rates in Hong Kong dollars mean that some investors will be keen to borrow in US dollars and invest in Hong Kong dollars.
US Dollar/Hong Kong Dollar Forecast
There is speculation that the Hong Kong dollar will be pegged to another currency as there are fears that the pegging will limit growth in Hong Kong. Adjusting the anchor fork or breaking the anchor would allow more movement. There is also talk of pegging the Hong Kong dollar to the Chinese yuan in the future. However, the possibility of a slowdown in economic growth in China may temporarily slow down this development.
The long-term prosperity of the Hong Kong dollar is also discussed. Some experts say that due to the growing influence of China in the state, the prospects for HKD are bleak, and it may become redundant.
A final word on USD/HKD trading
The narrow range of the USD/HKD currency pair means that it can be difficult to turn a profit and traditional strategies may not always produce the same results. For many, the pair's potential lies mainly in trades and swaps. For those who want to trade this pair, it gives them access to China's relatively closed economy.
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What is the history of the US dollar/Hong Kong dollar exchange rate?
The pair has had a turbulent history that has seen the US dollar and Hong Kong dollar fluctuate. The currency peg has stabilized most of these fluctuations, but there are rumors of a new peg and who knows what the future holds.
What is the conversion rate from US dollar to Hong Kong dollar?
The current exchange rate is displayed on the real-time price chart. It shows how many Hong Kong dollars it takes to buy 1 US dollar. This rate will fluctuate within the limits set by the HKMA.
What impact does the Bank of Canada have on the US dollar/Hong Kong dollar exchange rate?
The integration of the Hong Kong economy with China means that the Bank of China has influence over the position of the HKD. Waiting for BoC announcements can help guide investment decisions.
What is the history of the peg to the US dollar and the Hong Kong dollar?
In 1983, the Hong Kong dollar was pegged to the US dollar in order to stabilize the currency. Today, it continues to operate within established fixed boundaries. However, there is talk of removing or changing this parity in the future.