The Hong Kong dollar is poised for its biggest monthly retreat since 1985 as interest rates in the city drop and pessimism toward China’s economy weighs on the stock market.
The currency has declined 0.6% in August — or almost half the maximum swing possible under its trading band with the greenback — to approach the weak end of its permitted range.
Traders are shorting the currency to buy the higher-yielding US dollar as local borrowing costs fall — a strategy known as a carry trade. One-month SOFR now offers 1.6 percentage points more than the Hong Kong equivalent, the biggest premium since May. Less than four weeks ago the two were at parity.
Read the full story on Bloomberg here.