HKD accelerates its depreciation in May! The USD to HKD exchange rate hits a high of 7.83, with the exchange rate boundary close at hand.

MEVHunterNoLoss · 2026-01-06T12:11:50+00:00

The Hong Kong dollar has depreciated since May, with the USD/HKD reaching a new high of 7.83, mainly due to reduced net southbound capital inflows. The Hong Kong Monetary Authority's Linked Exchange Rate System stabilizes the HKD through a two-way intervention mechanism, and it is expected that the USD/HKD will stabilize around 7.80. Investors should assess market changes and consider opportunities to go long on the Hong Kong dollar.

MEVHunterNoLoss

2026-01-06 12:11:50

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Capital Flow Changes Trigger Exchange Rate Fluctuations

Since May, the Hong Kong dollar has experienced a sharp decline, with the USD/HKD exchange rate surging to 7.83 on May 21, reaching a high not seen in over a year. This depreciation is not accidental; the driving force behind it is the sudden decrease in net southbound capital inflows. As the actual demand for buying Hong Kong dollars significantly wanes, the pressure to close short positions intensifies, making the selling pressure on the HKD increasingly evident.

Hong Kong Monetary Authority’s Exchange Rate Defense Mechanism

Many investors may wonder why the Hong Kong dollar does not depreciate infinitely. The secret lies in Hong Kong’s Linked Exchange Rate System. The HKD is not a freely floating currency but is maintained within a stable range through the Hong Kong Monetary Authority’s (HKMA) intervention.

Specifically, when the USD/HKD rises to 7.85 (the weak-side convertibility rate), the HKMA will sell USD and buy HKD to absorb excess HKD supply in the market. Conversely, when the USD/HKD falls to 7.75 (the strong-side convertibility rate), the HKMA will buy USD and inject HKD to prevent excessive appreciation of the HKD. This two-way intervention mechanism ensures the exchange rate remains relatively stable without excessive volatility.

Future Exchange Rate Outlook

Analysis indicates that with the HKMA regaining control over HKD liquidity, the USD/HKD is expected to stabilize around 7.80. The current level is already close to the HKMA’s intervention boundary, limiting further breakout potential.

Investor Opportunity Assessment

From both technical and fundamental perspectives, the opportunity to short the HKD (i.e., expecting the USD/HKD to rise) appears limited at present. Conversely, going long on the HKD (expecting the USD/HKD to fall) may present more trading opportunities. This serves as a reminder for investors to closely monitor capital flow changes and adjust their expectations for USD/HKD movements accordingly.

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