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Sunday, February 28, 2021

USD/HKD in tight range as Hong Kong manufacturing continues to struggle

  • The USD/HKD is in a tight range as investors react to Hong Kong PMI data.
  • The manufacturing PMI rose from 40 to 47.7, in a sign that manufacturers are facing challenges.
  • Other recent data from Hong Kong like retail sales have also disappointed.

The USD/HKD is little changed today as traders react to the Hong Kong manufacturing PMI. The pair is trading at 7.7500, which is the lower side of Hong Kong dollar’s peg.

USD/HKD wavers

Hong Kong manufacturing sector under pressure

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Hong Kong’s economy has been under intense pressure in the past two years. Last year, the city experienced large-scale protests that affected all sectors of its economy. And this year, the coronavirus pandemic has seen most of its sectors like retail, real estate, and hospitality decimated.

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Today, data from Markit showed that Hong Kong’s manufacturing PMI rose from 44.0 to a three-month high of 47.7. While that was an improvement, the figure is below 50, which is a signal that the sector is facing significant deterioration.

In its explanation, Markit cited some restrictions by the government as the main reason why the sector continued to weaken. They also cited reduced business inflows/orders, depletion of backlogs, and reduced input purchases. Still, while most companies continued to hire in September, they were pessimistic about the state of the economy. In a statement, Bernard Aw of Markit said:

“Hong Kong’s private sector moved closer towards stabilisation at the end of the third quarter, with the latest PMI data indicating a slower deterioration in business conditions as some social distancing curbs were relaxed.”

The manufacturing sector in Hong Kong is relatively small. Instead, because of the high cost of doing business, companies prefer basing their operations in mainland China. Instead, the key sectors of the city’s economy are in finance, tourism, trading and logistics, and producer and professional services.

Other sectors of Hong Kong’s economy have also struggled recently. For example, data released last week showed that the city’s retail sales dropped by 13.1% to $3.3 billion. The sales by volume fell by 13.4% because of the restrictions implemented by the government. Indeed, sales have dropped for the past four consecutive months.

However, the financial sector has continued to do well. In recent months, several Chinese companies have moved to list to Hong Kong. The latest company planning to list in Hong Kong is Jack Ma’s Ant Financial, which will receive a valuation of more than $200 billion.

USD/HKD forecast

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USD/HKD chart

A technical analysis of the USD/HKD is not always viable because the Hong Kong dollar has been pegged to the US dollar for decades. As such, unlike other currency pairs, the exchange rate tends to be influenced by the Hong Kong Monetary Authority (HKMA). In fact, as seen above, the rate has remained in the same level in the past several months.

For starters, the Hong Kong government decided to peg its currency to the USD in 1983, in a move that has helped the city become a major financial power. The peg means that the Hong Kong dollar trades between $7.75 and $7.85. Over the years, HKMA has spent billions of dollars to support the peg. Kickstart your trading career with our free forex trading courses.

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