Carry Trade Weighs on Hong Kong Dollar as Capital Outflows Could Push Interbank Rates Higher

SighingCashier · 2026-03-22T19:01:35+00:00

Recently, the Hong Kong dollar has faced depreciation pressure due to weakening carry trade activities. Despite capital inflows from the Middle East into the market, experts believe the chance of the Hong Kong dollar approaching 7.85 is unlikely. However, if the Monetary Authority intervenes, funds may still remain in Hong Kong, primarily in the form of US dollar deposits, which could affect the liquidity of the banking system.

SighingCashier

2026-03-22 19:01:35

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March 23, 2026

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Carry Trade Weakens Hong Kong Dollar; Capital Outflows May Drive Up Interest Rates

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Recently, there have been reports that Middle Eastern funds are flowing into Hong Kong. However, the Hong Kong dollar is gradually approaching its weak-side exchange rate guarantee level. According to financial market experts, the weakening of the Hong Kong dollar is mainly driven by short-term carry trades involving selling HKD to buy USD. Although the market generally believes that reaching the 7.85 level is unlikely, even if the Hong Kong Monetary Authority (HKMA) passively intervenes to absorb HKD selling pressure, it does not necessarily mean capital is leaving Hong Kong. More likely, funds are being converted to USD and parked in Hong Kong. Considering the current low bank system reserves, once the HKD…

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