HONG KONG (Dow Jones)--The Hong Kong dollar rose against the U.S. dollar for a second straight session Thursday as investors took advantage of the unit's low funding cost, and borrowed the Hong Kong dollar to convert into the Chinese yuan, which is currently in great demand.
In late Asian trade, the U.S. dollar was at HK$7.7667, down from HK$7.7688 late Wednesday. The U.S. unit was fixed at HK$7.7665 earlier Thursday.
Traders believe the use of the Hong Kong dollar as "a carry trade" will last at least for next few sessions. They expect the U.S. dollar to reach HK$7.7600 this week.
"Demand for the renminbi is strong, as investors are collecting bullets for the coming issues of dim sum bonds, and (Renminbi-Qualified Foreign Institutional Investors) products" that allow offshore investors to buy domestic shares and bonds in mainland China, said a senior trader at a local bank.
Investors are taking advantage of the low interbank rates in the Hong Kong dollar market to borrow the local currency in exchange for the Chinese yuan, he said.
The offshore spot yuan hit a record high against the U.S. dollar Thursday. The U.S. dollar was at an all-time low of CNY6.3060, down from CNY6.3130 late Wednesday.
Also, the one-year U.S. dollar/Hong Kong dollar forward contract hit a premium of 30 points against the spot rate, compared with a discount of 48 points late Wednesday, triggering some buying of the Hong Kong dollar in the spot market.
-By Fiona Law, Dow Jones Newswires; 852-2802-7002; fiona.law@dowjones.com
