Hong Kong Dollar Rises After Better PMI Data

Hong Kong is an important region
in Asia because of its economic proximity to mainland China. The city is a
special administrative district for China. As such, it has its own local government,
currency, and a central bank that is responsible for setting the monetary
policy. The city is one of the biggest financial district in Asia and has one
of the largest exchanges. For this reason, investors who want to invest in
China but want to avoid the mainland find Hong Kong as an ideal place to do
business. The city has more than 7 million people and a GDP of $341 billion.

Today, the city released the
manufacturing PMI data that showed an increase to 48.2. This was higher than
the previous PMI number of 48. Still, the PMI number is still in the
contraction level, which it entered in May of last year. While manufacturing is
a minor contributor to Hong Kong’s GDP, contraction is usually a bad sign. The
reduction of the PMI in Hong Kong is in line with the overall deterioration of
the global PMI as trade tensions rise. In fact, yesterday, Trump ruled out that
he would meet with President Xi of China before the March deadline on trade
talks. This will likely lead to a prolonged period of trade tensions and
sluggish growth.

The Hong Kong dollar is usually
pegged to the US dollar, which helps reduce the volatility as is common with
other emerging market economies. From December, the USD/HKD pair has moved from
a low of 7.8012 to a high of 0.8480. The current level is closer to the
important resistance level of 7.8505. In the past few weeks though, the pair
has remained being unchanged as traders have been on a wait and see. This week,
its sluggishness has happened because the markets have remained closed as they
celebrate the new year. Therefore, when the market opens on Monday, there is a
likelihood that volumes will increase, which could lead to sharper price
increases.

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