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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: Henry Volquardsen who wrote (376)	8/2/1998 9:49:00 PM
From: Ramsey Su	Read Replies (1) of 3536

Henry, does the following imply someone is trying to attack the HK$? Ramsey Monday August 3 1998 Money market rates to rise in wake of $1b HKMA deal PETER CHAN Money market rates are expected to rise today after the Hong Kong Monetary Authority accepted local currency selling orders amounting to $1 billion in overseas trading on Friday. The authority's figures updated on Saturday showed it forecast the aggregate balance of the Liquidity Adjustment Facility (LAF) would be reduced by $1 billion to $1.33 billion tomorrow. The figures implied that the authority had bought $1 billion on Friday for US$130 million. The deal will be settled tomorrow, which is two trading days after the execution day - T+2 settlement. The market is understood to be concerned about the low balance level at the LAF, which is essentially a measure of the amount of short-term liquidity available in the system. Tomorrow's balance of $1.33 billion could be easily cut to zero by similar sale of Hong Kong dollars to the authority for only US$173 million, an amount not regarded as significant in the international foreign exchange trading arena. Normally Hong Kong dollar selling orders were absorbed by commercial buying interests in the market at levels below $7.75 per US dollar and these kind of selling cannot hit the LAF balance. Only when selling is at $7.75 or more per US dollar, will the buying party be the authority, which is believed to always place bids at this price to prevent the local currency from weakening to levels beyond. This type of "direct" dealing to the authority is more likely to succeed in overseas trading where volumes are generally very thin. Money market rates remained quite stable last week with one-month rate closing at 8.75 per cent and three-month at 9.125 per cent on Friday.

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