(April 14): Hong Kong’s policymakers are getting close to staging an unusual intervention to cap the local dollar’s gains, as the greenback plummets due to raging trade tensions between the US and China.

The city’s currency has been hovering within a whisker of the strong end of its 7.75-7.85 per dollar allowed trading range since last week, as the greenback slumped on bets the trade war will hurt the US economy. A breach of the topside of the range would see Hong Kong sell local dollars to cool its rally and maintain the currency’s peg to the greenback.

The last time the Hong Kong Monetary Authority made such a move was around four years ago. In comparison, it has stepped into the market in 2022 and 2023 to put a floor under the currency when it threatened to breach the weak end of its trading band.

A potential intervention from Hong Kong’s de facto central bank to limit the local dollar’s rally comes at a time when other monetary authorities in the region contend with currency losses due to the fallout of the trade war between the world’s two largest economies.

“The HKMA will intervene to sell Hong Kong dollars when it touches its strong-side convertibility undertaking,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank. The currency “is likely to stay around the 7.75-7.76 area on the greenback’s weakness.”

The Hong Kong dollar rallied to the strongest in four years last week as the greenback slumped. The city’s currency was also aided by purchases of local stocks by Chinese investors, as a record buying of HK$35.6 billion (RM20.32 billion) on Wednesday took last week’s total southbound inflows to an unprecedented HK$82 billion.

The HKMA didn’t immediately comment on an emailed inquiry.

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