HONG KONG, Dec 19 (Reuters) - The Hong Kong dollar on Tuesday fell to its weakest against the U.S. dollar in three months, triggered by strong demand for the greenback as the year draws to a close, analysts said.
They expect the local currency to fall further in the coming months as the Hong Kong Monetary Authority (HKMA) ruled out the possibility to issue extra Exchange Fund Bills & Notes (EFBN) in the near term, which would otherwise help support its currency.
Earlier in the session, the Hong Kong dollar touched 7.8211 per dollar, its lowest since Sept. 7.
“Heading to the year-end, we look for further HKD weakness as the HKMA granted the green light for HKD depreciation to its weak side of convertibility of 7.85 and verbally removed the threat of extra EFBNs issuance in the near term,” said Ken Cheung, senior Asian FX strategist, Mizuho Bank.
The HKMA issued HK$80 billion ($10.3 billion) worth of Exchange Fund Bills since early August, though the city’s de-facto central bank said the issuance had nothing to do with the Hong Kong dollar’s weakness.
Local media last week cited Norman Chan, head of HKMA, as saying issuance of the additional HK$80 billion helped meet market’s demand, and HKMA had no plans to issue more for the time being.
In the long term, the U.S. Federal Reserve’s monetary policy normalization and a likely U.S. tax cut could also bring capital repatriation to the U.S. market, and in turn, build up capital outflow pressure from the HKD market, Cheung said.
The Hong Kong dollar, pegged against the greenback, fluctuated between a range of 7.75 and 7.85, and would require HKMA intervention if it hits either end of the currency band. (Reporting by Michelle Chen; Editing by Sherry Jacob-Phillips)