HKD rates to stay lower for longer as USD/HKD peg system is likely to hold - OCBC

FXStreet notes that from last year’s social unrest to this year’s US-China tensions, both have sparked concerns about a potential capital exodus from Hong Kong from time to time. However, instead of capital flight, so far, markets have seen very strong capital inflows. Three factors including free capital flow, common law system and HKD/USD peg system have made it hard for global investors to give up on Hong Kong’s financial market. Since the USD/HKD peg system is likely to hold, HKD rates are expected to stay lower for longer in tandem with the US counterparts, per OCBC Bank. 

“We think there are three factors that make it hard to give up on Hong Kong’s financial market. First, the free capital flow. According to the Article 112 of the Basic Law, the Hong Kong dollar shall be freely convertible. This gives confidence to the investors who highly value the ease of funds repatriation. Second, the common law system. This system is applied in the other major financial markets such as the US, the UK, Singapore, Australia, New Zealand, etc. This reduces the investors’ concerns about the difficulty of resolving potential disputes. Third, the HKD/USD peg system. The currency peg system is transparent and stable and therefore allows investors to save on hedging costs."

“Should the Fed keep rates unchanged near zero before end-2023, the new era of low rates in the world including Hong Kong is likely to be prolonged too. This will therefore give a boost to the financial market as well as the residential property market in Hong Kong.”