Gains in the domestic stock market on strength in Asian bourses bolstered investors' interest in the Hong Kong dollar, sending the local unit higher against the U.S. dollar Monday.
Traders said investors' risk appetites increased following gains in U.S. stocks Friday, and their preference for assets with higher returns limited the U.S. dollar's gains. They said they expect the U.S. dollar to be capped at HK$7.7510 this week.
In late Asian trade, the U.S. dollar was at HK$7.7509 down from HK$7.7514 late Friday. The U.S. unit was fixed at HK$7.7508 earlier Monday.
Gains in Hong Kong stocks spurred strong demand for the local currency from local and foreign banks during morning trade, a trader at a U.K. bank said.
'I expect sentiment in the local equities market to remain bullish this week, tracking firm gains in regional equity markets. It helps to boost demand for the local currency and lure more capital inflows, lending upward pressure on the Hong Kong dollar,' the trader said.
Asian stock markets were broadly higher Monday after Wall Street rose 1.67% Friday. The blue-chip Hang Seng Index rose 337.92 points, or 1.67%, to 20,536.94, while Japan's Nikkei 225 ended up 3.4%.
Another trader at a local bank said weakness in the U.S. dollar against the Australian and New Zealand dollars also encouraged selling of the U.S. unit locally.
The Australian dollar was at US$0.8386 in late Asian trade Monday, up from US$0.8249 late Friday. The New Zealand dollar also rose to US$0.6851 from US$0.6721 late Friday.
Hong Kong interbank offered rates were broadly steady due to ample liquidity.
'I expect the one-month and three-month Hibors have bottomed out. But continued inflows kept liquidity ample, undermining any force to drive them up in the near term,' said another trader at a U.K. bank.
The one-year U.S. dollar/Hong Kong dollar forward contract was quoted at a discount of 200 points to the spot rate, compared with a 193-point discount late Friday.
