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Hong Kong dollar and Chinese currency end January in the red, more volatile trades seen ahead

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A vendor holds yuan notes at a market in Beijing. Photo: Reuters

Both the Hong Kong dollar and the yuan swung up on Friday but still ended January in the red, with analysts predicting more currency volatilities ahead.

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The Hong Kong dollar rose 0.05 per cent to 7.7893 on the last trading day of the month. It reported a 0.51 per cent loss for the whole month, which marked the local currency’s biggest swings and sharpest falls in the 32-year history of its peg to the US dollar.

The yuan remained soft, with offshore yuan weakening by 0.03 per cent to 6.6111 to the US dollar. For the whole month, it posted a loss of 0.66 per cent, following a 5.67 per cent fall last year. Analysts said it remains on a weakening trend.

Stephen Innes, a senior trader at OANDA Asia-Pacific, said the yuan continues to face headwinds, while speculation on Hong Kong dollar would continue.

“I do not see the weakness in the Hong Kong dollar as anything out of the norm especially given the recent Fed hike, which in itself pressures the local unit from an interest differential perspective. However, the market started to get a bit too excited with unfounded rumours circulating regarding the peg giving way,” Innes said.

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“I suspect that perhaps contributed to overzealousness from the speculative community, causing the overshoot.”

He said trading had slowed considerably leading into the Lunar New Year, but added that he expects “the offshore yuan to come under renewed pressure after the Chinese New Year holidays”.

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