Among the favorite topics of Bloomberg News is scary stuff on the Hong Kong dollar. This Wednesday morning’s headline read “Trump Aides Weigh Proposals to Undermine Hong Kong’s Dollar Peg.”
In the afternoon edition, this softened to “Traders Skeptical That Trump Will Break Hong Kong’s Dollar Peg.”
What’s going on here? Is Bloomberg doing a drum roll for Texas hedge fund manager and rabid China foe Kyle Bass’s fool’s bet on the HKD collapse, as reported by the news outfit’s June 9 story titled “Kyle Bass Makes Audacious Bet On Hong Kong’s Currency Peg Collapsing?”
Probably not. It wouldn’t look good if someone at the company would make big money shorting the HK Dollar; or putting it differently, it would easily look as bad as a certain US senator selling stocks on (allegedly) privileged information on the expected severity of the Covid-19 crisis.
But this is a case where the later and obvious commentary by economists and traders on the massive unlikelihood of the putative US White House action should surely have been taken into account at the time of the third or fourth party “report”.
As for the HKD, it did not care. Nor did the CNY, which of course, would also be affected by a HKD peg collapse.
At 5pm HK time, the HKD stood at 7.7500, flush against its upper trading limit against the USD, and much as it has been trading for weeks. On Tuesday, the Hong Kong Monetary Authority (the HK central bank) once again had to massively intervene to the tune of selling HK$8.13 billion in order to prevent the HKD rising above 7.75.
As for the yuan, the PBoC (Chinese central bank) set central parity at 7.0207 this morning, higher than yesterday and higher than any time since mid-April. Still, the onshore yuan (CNY) rose further in the course of the Asian trading day to 7.0184 by 5pm. The offshore yuan (CNH) rose to 7.0177.
These currencies are trading immediately in line with demand and reflect the outperformance of the Chinese economy relative to the still seriously virus-stricken US economy.
And shouldn’t US President Trump be elated to see the HKD and CNY rise against the USD to provide at least a little bit of much needed help to US exports?
Technically, it would be quite straightforward for the US to take measures to trouble the HKD peg: The US could impose limits on or outlaw US and Chinese banks’ buying and selling of US dollars. The US could also close the SWIFT system to HKD/USD transactions, similar as done in the case of Iran.
It would be the perfect shot in the foot for the US and the USD’s status as unrestricted global reserve currency.
This report appeared first on Asia Times Financial.