Amy Yuan Zhuang, Chief Asia Analyst at Nordea Markets, points out that the HKD trading at 7.846 is close to prompt for HKMA intervention to defend the USD peg and they see no problem in the HKMA's ability to maintain the peg but argue for a change of willingness.
Key Quotes
“After moving in that direction since early 2017, the HKD is flirting with the upper end of the currency peg band of 7.85. As reasoned below, we have no doubt about the HKMA’s ability to defend the 34-year-old peg to the USD. However, given the overheated housing market and generally expanding credit bubble, we see risks of the HKMA’s expected intervention to defend the peg. It raises the question of whether Hong Kong should continue to follow the USD peg.”
“In light of the potential risks to erupt the housing and debt bubbles with intervention to defend the USD peg, it is time for Hong Kong to reconsider its currency regime. The HKMA has reiterated that the HKD will not be pegged to the CNY, despite the economic proximity to China, as long as the CNY is subject to capital restrictions. We argue that the HKD could be pegged to a basket of currencies, similar to the CNY, with a large weight to the CNY.”
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