Hong Kong moves to weaken local dollar again

Hong Kong's de facto central bank intervened in the currency market on Tuesday for the second time in a week as the local dollar hit its upper trading limit against the greenback. The Hong Kong Monetary Authority sold HK$3.91 billion (US$505 million) in forex markets, saying the move was necessary to "maintain stability" of the city's unit. The intervention, on a public holiday, followed a similar move on Friday in New York. The authority is obliged to act by buying or selling the local dollar whenever it touches either side of the HK$7.75-HK$7.85 trading band against the US dollar, to which it has been pegged for 29 years. The HKMA told AFP it "will remain closely vigilant of the market developments and act in accordance with the currency board mechanism to maintain the exchange rate stability of the Hong Kong dollar". The authority sold local dollars worth US$603 million on Friday to curb the local unit's rise, which it said had been fuelled by weeks of capital inflows from overseas. The US Federal Reserve's monetary easing has also weakened the greenback. Friday's intervention was the first since 2009. The moves reignited talk of abolishing the local currency's peg to the US dollar, with some leading officials -- including the former head of the HKMA Joseph Yam -- calling for a review. Yam said in a research paper earlier this year it was time for other options to be explored, including a peg to a basket of currencies or a complete float. The HKMA made multiple interventions to weaken the local currency in 2008 and 2009 at the height of the financial crisis, as traders moved into the Hong Kong dollar which was seen as a safe haven.