The Hong Kong Monetary Authority (HKMA) has stepped into the financial market again to rein back the local currency, which had been pushed above its trading band against the US dollar amid the recent influx of capital in the city’s bourse. In its first market intervention in two years, the city’s de facto central bank bought US$6.005 billion at HK$7.75 and sold HK$46.539 billion worth of local currency, according to the HKMA’s statement on Saturday morning. That intervention comes less than a week ahead of the US Federal Reserve’s next meeting on Thursday, when it is expected to discuss whether to lower interest rates. Similar interventions are likely to occur if the US moves to cut interest rates in the coming months, which would prompt more capital inflow to Hong Kong, according to some bankers. “The recent strength of the Hong Kong dollar is mainly driven by increased demand for the currency related to equity investment activities, which has supported the exchange rate,” an HKMA spokesman said in the statement. “Additionally, the recent appreciation of several regional currencies against the US dollar has also contributed to the strengthening of the Hong Kong dollar,” he said. “The HKMA will continue to closely monitor the market situation and ensure Hong Kong’s money and foreign exchange markets operate in an orderly manner.” The last time the HKMA intervened to prevent the local currency from rising above its trading band against the US dollar was in October 2020, when capital inflow swelled amid a number of major public listings in the city that year. “The money inflow shows that investors have confidence in the Hong Kong market,” said Tom Chan Pak-lam, chairman of the Hong Kong Institute of Securities Dealers. The Hong Kong currency’s peg with the US dollar has been in place since 1983. In an initiative that started in 2005, the HKMA intervenes to keep the exchange rate within the trading band of HK$7.75 to HK$7.85 per US dollar. The local currency hit the strong end of the trading band at HK$7.75 overnight, Hong Kong time, during the start of trading in New York, triggering the intervention. After settlement on May 7, the intervention is expected to raise the HKMA’s aggregated balance – a measure of the Hong Kong banking sector’s liquidity – to HK$91.31 billion. That would amount to nearly double the current level of HK$46.54 billion. The HKMA’s latest intervention came after Hong Kong’s currency reached its strongest level in four years against the US dollar, driven by demand from mainland Chinese investors who are buying stocks in one of the world’s cheapest major capital markets through the Stock Connect scheme. That included so-called southbound capital from the mainland, as investors would exchange their yuan for the Hong Kong dollar to buy locally listed stocks such as Alibaba Group Holding and Tencent Holdings. Alibaba owns the South China Morning Post. “Continuous southbound inflow from mainlanders in Hong Kong is a major contributor to the local dollar’s strength,” said Tommy Ong, managing director at T.O. & Associates Consultancy, who expects the local currency to hover between HK$7.757 and HK$7.78 per US dollar before June. China’s state funds have also been big investors in Hong Kong’s stock market. They were involved in more than HK$170 billion worth of transactions per day on April 9 and 10, representing over 40 per cent of total turnover, according to stock exchange data. Their investments helped ease pressure on the local stock market from a trade war-induced slump. The Trump administration’s new tariff regime caused the Hang Seng Index to fall 13.2 per cent on April 7 – its worst percentage drop since the 1997 Asian financial crisis. Saturday’s market intervention by the HKMA marked its first since May 3, 2023, when the authority prevented the local currency from trading on the weak end of the peg. That year, the HKMA intervened eight times in the market by buying a total of HK$54.51 billion worth of local currency. That came after the HKMA bought a total of HK$242.08 billion in 41 market interventions in 2022. The last time the HKMA intervened to prevent the Hong Kong dollar from going above its trading band against the US dollar was in 2020. The authority intervened in the market 85 times to sell a total HK$383.51 billion of local currency, as international capital inflow rose owing to major public listings that year.