- Hong Kong's government bought $560 million worth of its own currency to protect its US dollar peg, Bloomberg reported.
- The Hong Kong currency slipped to the weak end of its trading band against the strengthening greenback.
- "The Federal Reserve's rate hike pressure could spread to the Hong Kong dollar market in the next three months."
Hong Kong's government bought its local currency on Tuesday for the first time since mid-May to protect its peg to the US dollar, which has soared this year, Bloomberg reported.
The Hong Kong dollar is permitted to hover between a 7.75 and 7.85 per US dollar, but it slipped to the weak end of its trading band at 7.85 against the strengthening greenback.
The Hong Kong Monetary Authority bought 4.396 billion Hong Kong dollars — about $560 million in US dollars — to support the currency. The city's foreign exchange balance will slip to about 315.6 billion Hong Kong dollars on June 16.
The latest currency intervention follows Hong Kong's purchase of 18 billion local dollars between May 11 and May 16 after the currency lost the low end of the trading range.
Investors have been shedding positions in the local currency in Hong Kong as the Federal Reserve's tightening campaign has catalyzed a climb in the US dollar.
"The Federal Reserve's rate hike pressure could spread to the Hong Kong dollar market in the next three months," Ken Cheung, a top foreign exchange strategist at Mizuho Bank, wrote in a note.
He added that Hong Kong's government will have to keep up with the Fed's monetary tightening schedule to maintain the currency peg.
Jefferies has predicted that the Fed is set to hike interest rates by 75 basis points this week, upping its previous call of a 50-basis-point hike. The move could push the US dollar to an even stronger position against other major currencies.
The US dollar index has jumped 9% this year to hit a 20-year high.
