USDHKD dropped to its 3-year lows earlier today after the Hong Kong Monetary Authority (HKMA) cut interest rates after the Fed. The currency pair fell to 7.7567 following the move before settling at 7.7666.
The HKMA which oversees Hong Kong’s monetary policy, announced a 50-basis point rate cut, bringing its official benchmark rate to 1.50%. This follows after the Federal Reserve conducted an emergency cut which was the first time since the 2008 financial crisis. The HKMA runs its monetary policy in accordance with the Fed to maintain the Hong Kong dollar’s peg to the US dollar.
The move is expected to help the Asian economy which has been struggling since the coronavirus outbreak. Hong Kong’s close proximity to China geographically and in terms of trade placed its economy in a vulnerable position. However, the move was unable to inspire a rally among Hong Kong stocks. The Hang Seng Index finished today’s trading at 0.48% or 126.5 points lower at 26,222.1. Typically, rate cuts are bullish for equities markets because the added liquidity is expected to funnel into stocks sooner or later. It would seem that investors are still wary with the coronavirus still haunting the public.
USDHKD has retraced some of its gains back to the 38.2% Fib level (when you draw the Fibonacci retracement tool from yesterday’s high to today’s low). By connecting the highs of March 2 and March 3, we can see that the currency pair still has some room to trade higher and still maintain its downtrend. There is a confluence of resistance at 7.7697 where the falling trend line and 50% Fib level coincide. Reversal candles around this price could indicate a potential sell off back to its multi-year lows at 7.7567.