The Hong Kong dollar weakened slightly on Wednesday as steady investment funds flowing into the city were offset by interest rate arbitrage trades. The currency was trading at 7.8150/52 against the US dollar, down from 7.8130/31 in late Tuesday trade in Asia.
"We've seen two-way business. There was some demand for the Hong Kong dollar, probably for the stock market or to subscribe to the IPOs. Buyers in US dollars were on carry trade because short-term (interbank) rates remained low," said a dealer at a European bank. Several companies are set to list on the Hong Kong bourse in July.
In the stock market, the China Enterprises index of H-shares erased earlier losses to end flat while the blue chip Hang Seng Index fell 0.45 percent. The local currency is pegged at 7.80 to the US dollar, but can trade between 7.75 and 7.85.
Hong Kong dollar forwards spent most of the day in a narrow range with some buying interest in the longer-dated contracts. The discount on one-year forwards narrowed to 550/535 pips from Tuesday's close of 570/560 pips.
Interbank rates were mixed. Short-term rates softened and dealers reported that some Chinese banks had offered liquidity within one month. The volatile overnight rate was quoted at 3.50/3.60 percent late in the day, down from a morning high of 3.95 percent.
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