The Hong Kong dollar is not an ordinary global currency. It acts as a” tracking stock ” for Hong Kong, which is part of China with self-management capability. The HKD will also not become obsolete in the future if the free trade of the Chinese yuan is allowed, as there will no longer be a need to trade the Hong Kong dollar. Today, the Hong Kong dollar is one of the world’s most essential trading currencies, being eight on Forex upon trading. Although it is the third currency in Asia, HKD is not yet included in the reserve currency, and trading is allowed through a linked exchange system. This means that it is possible to trade HKD in a narrow band concerning the US dollar. The HKD interest rate is formed on an automatic mode designed to maintain a stable exchange rate.
Although Hong Kong has been part of China for many years, it still mostly functions as an Autonomous region with a small economy of its own, which ranks 39th in the world in terms of GDP.
Hong Kong’s GDP growth over the past 20 years has been quite volatile; however, overall, it has generally exceeded 5% and sometimes reached 10%. Inflation was also volatile – up to 10% in 1995-but was negative for more than four years at the turn of the century. HKD interest rates have been quite low recently. However, the debts of real estate developers, which are covered by national banks, have a volatile and significant impact on the economy of Hong Kong.
Hong Kong has long been a critical financial and trading hub in Asia, thanks to low taxes. Almost every significant securities house and global Bank has an office in the country, and the Hong Kong stock exchange ranks sixth in the world by market capitalization.
The country’s economy is primarily based on services, and while manufacturing in Hong Kong occurs, more than 80% of the workforce is employed in services, including hospitality, financial services, retail, and trade. There is a view that Shanghai is becoming an increasingly important commercial center, and Hong Kong will eventually lose its position. However, there is no indication that this is happening.
According to the laws of Economics, the yen, like the dollar and the Euro, is driven by the forces of supply and demand. Problems that affect supply and demand can directly or indirectly affect the yen.
To begin with, we have the gross domestic product. This is the measure by which economists estimate the net production and consumption of products and services in the country. It offers enough information about the state of Japan’s economy and could seriously affect the yen. The lack of growth usually causes the currency to decline.
Almost every Forex expert looks at the index of industrial production. Japan is an economy that depends on the output. Thus, the index shows the volume of production in manufacturing, mining, and utility companies. History has shown that when the data is negative, it can affect the value of a currency.
Another critical factor is the unemployment rate. Almost everyone who trades in different markets, especially on the currency exchange, follows the vacancy reports, which indicate the overall state of the Japanese economy. The data are published monthly by the Agency for management and coordination. Lower unemployment, which is better than expected by the market, may have an impact on the currency, making it more expensive. Note that overall improvements in employment are considered very positive in the market.
A trade surplus is another crucial factor that could affect the yen. Economists say a country’s strength is based on how well producers perform. Japan imports raw materials and turns them into finished products. So, Japan is counting on exports to survive. The positive difference between exports and imports is what is known as a trade surplus. The yen tends to react every time a country has a trade surplus.
Most likely, you have heard about the Tankan Survey. This shows the mood of business owners concerning short-term business prospects. Usually, when the Outlook is positive or more positive than expected, you can see the value of the yen rises.
The yen is also affected by oil prices. Rising prices are considered bad for the Japanese economy and the currency, as it leads to a rise in the number of Japanese products.
Last but not least, the policy of the Central Bank. Any talk of stimulus tends to weaken the currency. It is for this reason that market traders say they are looking for signs of changes in monetary policy.
When trading HKD/JPY, most of the financial indicators of the United United States of America should be taken into account: US GDP, unemployment rate, exchange rate expansion, and adjustment. The economies of Hong Kong and Japan are equally critical. The Japanese yen is considered the currency of a high-tech low-income nation.
Because the Hong Kong dollar is somewhat different from other currencies, its economic drivers are also different. While financial data such as GDP, current accounts, trade balances, and inflation matter, they are only relevant up to a point, as the Hong Kong dollar can only be traded in a narrow band. Also, since the Chinese and Hong Kong economies are closely linked, any Black Wednesday-type RAID on HKD will inevitably fail. HKD is not a particularly tradable currency, because while large banks with powerful computers can make some profit from the fractional movement of currency prices, the narrowness of the range keeps most small speculators from investing. Therefore, most transactions that use HKD are intended solely for business transactions or as part of a manual transaction.
The Hong Kong dollar currently has a low-interest rate, making it an attractive currency for carrying traders. You can borrow Hong Kong dollars cheaply and then use the money to buy high-yield debt in a country like New Zealand or Australia.
There is a reasonable chance that in the long run, HKD will no longer be relevant and may even disappear. Eventually, there may come a time when foreign exchange control of the Chinese yuan will be significantly reduced or weakened, at which time the HKD will not play a vital role in the future.