USD/HKD: Hong Kong dollar joins EM currencies sell-off

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Feb 24, 2021
  • The USD/HKD price rose slightly after the latest Hong Kong GDP data.
  • The government unveiled plans to offer more stimulus.
  • This will lead to more budget deficits for the next few years.

The USD/HKD price rose today as forex investors reacted to the latest Hong Kong GDP data and the new stimulus by the government. The pair rose to 7.7550, which is slightly above the year-to-date low of 7.7500.

USD/HKD
USD/HKD price action

Hong Kong launches new stimulus

The Hong Kong government announced a plan to roll-out a new stimulus package worth about $15.5 billion to support the economy. In an announcement, Finance Secretary Paul Chan, said that this new stimulus will push the overall deficit to more than H$257.6 billion. He also expects that the economy will grow by between 3.5% and 5.5% this year. 

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The statement came on the same day that the city released its latest GDP figures. According to the statistics agency, the economy contracted by 3.0% in the fourth quarter from a year earlier. This was slightly better than the previous quarter’s decline of 3.6%. In total, the economy contracted by 6.1% in 2020.

The weakness was mostly due to a 7.2% decrease in private consumption expenditure (PCE). This was offset by a 5.6% and 2.6% increase in government expenditure and capital formation, respectively.

Economists believe that the Hong Kong economy will do well this year. For one, due to the National Security Law, the protests experienced in 2019 will be a thing of the past. Also, many businesses are expected to invest in the city. 

Meanwhile, the USD/HKD also rose because of the overall performance of other emerging market currencies. This week, major EM currencies like the South African rand, Mexican peso, and Turkish lira have declined because of the rising yields in the United States.

USD/HKD technical outlook

USD/HKD
USD/HKD chart

The USD/HKD is a relatively unique currency pair because the Hong Kong dollar is pegged to the US dollar. Therefore, as a trader, it is recommended that you spend some time practicing in a forex demo account first.

On the four-hour chart, the pair formed a double bottom pattern at 7.7510 between late January and early February. Since then, it has made some gains and reached the highest point since January 12. The pair has also moved above the important resistance at 7.7540. It has also risen above the 25-day and 15-day weighted moving averages. Therefore, the pair may continue rising in the near term.

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