The Hong Kong Monetary Authority bought HK$7.104 billion (US$905 million) worth of US dollars during New York's Monday trading hours to stop the local currency weakening beyond its target range.

The Hong Kong dollar is pegged within a band of 7.75 to 7.85 versus the U.S. dollar. It touched 7.85 on Monday.

The aggregate balance – the main gauge of cash in Hong Kong's banking system – will fall to HK$69.915 billion on April 6, an HKMA spokesperson said on Tuesday morning.

The HKMA has bought the equivalent of US$34.2 billion since 2022 in 44 rounds of interventions since the US Federal Reserve began hiking interest rates last March.

Analysts say a lack of major initial public offerings, which used to lock up large amount of subscription money from retail investors and squeeze short-term interbank borrowing costs, had left the banking system flush with cash.

Combined with weak loan demand, banks' appetite for funding remains low. Hong Kong interbank rates therefore continue to hover at a discount compared to US interbank rates, said Ken Cheung, chief Asian FX strategist at Mizhuho Bank.

"Before the US Federal Reserve pauses its current interest rate cycle I'd expect the Hong Kong dollar to remain volatile, and hover in the weaker-half of a trading band at 7.8 to 7.85," Cheung said. (Reuters)