USD/HKD – Forex

USDHKD
Min Spread *
1000
Target Spread *
1000
Leverage/Margin
1:30
Commission
0
Swap point Long/Short
-235.42 / -230.33
Nominal Value of one lot
100 000
Trading hours
24 h

Instrument description

The Forex market is primarily dominated by the major currency pairs that contribute to more than 80% of the daily market transactions. The major currencies that are popularly traded include U.S Dollar, Euro, Great Britain Pound, Japanese Yen, Swiss Franc, Australian Dollar, New Zealand Dollar, and Canadian Dollar. Although the major currency pairs prevail in Forex trading but there also other currency pairs that may not be as widely traded but hold significant value and presence.

The U.S Dollar combination with the Hong Kong Dollar is one such pair and denoted by USD/HKD where USD is the base currency, and HKD is the quote currency. The USD/HKD pair is known in the Forex market as one of the ‘Exotic pairs,’ which are pairs that are thinly traded in the Forex markets but represent a developing market. The exotic pairs are illiquid, trade at low volumes, but can be quite volatile.

The exchange rate of USD/HKD indicates how much the U.S Dollar is worth when placed against the Hong Kong Dollar. For example, if the current rate shows 1 USD is equal to 7.75 HKD, it means it will take a trader 7.75 Hong Kong Dollars to buy 1 U.S Dollar. When we analyze the historical and statistical data, the USD has always been the stronger of the two currencies due to large trading volumes and liquidity.

History of USD/HKD Currency Pair

Being an exotic pair, the USD/HKD pair has not achieved dominance like other major currency pairs, but the USD/HKD pair has performed fairly well in recent years, and its trading volume doubled from 1.5% to 3.3% from 2016 to 2019. The U.S Dollar is arguably the most traded currency in the world, while the Hong Kong Dollar is the 13th most traded currency.

The U.S is recognized as the largest economy in the world, and U.S Dollar is also considered as the world’s leading reserve currency. According to the International Monetary Fund (IMF), the Gross Domestic Product (GDP) of the U.S was 23% of the global GDP. A large portion of the U.S exports consists of motor vehicles and machines, while the exports of Hong Kong consists of electrical equipment. U.S imports almost 5.6% of Hong Kong’s total exports while Hong Kong imports nearly 8% of total exports of the U.S.

The Hong Kong Dollar first emerged in 1863, and the administration and printing of the currency is under control of the Hong Kong Monetary Authority (HKMA) till now. The HKD was pegged to the USD in 1972 through a system called ‘linked exchange rate’ and continues to do so while the HKMA adjusts its value frequently. As been pegged to the USD, the value of the USD/HKD pair varies within the range of 7.75 to 7.85. The Hong Kong Central Bank will only intervene to adjust the USD/HKD quote if it leaves the given price range.

Hong Kong has always been an economic hub with non-stop trading and logistic activities. Hong Kong is the center of financial activities in Asia. But due to a lack of natural resources, the economy of Hong Kong is directly dependent on global prices of oil, gas, and metals. The USD/HKD pair reached the highest value of 7.849 in April 2018, and the lowest value was reached very recently on June 13, 2020 which was 7.7498.

How to Trade USD/HKD Pair

With a small trading volume, the USD/HKD is still favored by most traders due to its predictable nature and low volatility. The daily turnover of USD/HKD pair reached $1.5 Billion, which is quite an impressive figure in the Forex market. The predictable nature of the USD/HKD pair makes it a favorite option for trading and also to perform carry trade. The USD/HKD pair a,omg other options can be traded using the Contract of Differences (CFDs), and it gives three advantages to the traders. The first one is using leverage, which means by using a small initial deposit to open a larger trading position. The second is speculating on the underlying asset without having to own the currencies.

The third advantage is that trade can be made in both directions, which is either going Long or Short when making a trade. For example, if a trader believes the USD will appreciate as compared to HKD, then he will go long or Buy, and similarly, if a trader assumes that the USD will depreciate in the coming days, he would go short or sell. With CFDs,due to leverage there is opportunity to magnify profits but equal chances of losses, so a trader may apply a risk strategy to try to minimize the risk of losses.

How to read the Price Change in USD/HKD Pair

The USD/HKD pair is a popular trading option for novice traders. The USD/HKD pair has a predictable shift in value, but the market volume of trading is quite small and almost 1% per day. If we take a look at the price chart of the USD/HKD pair, we see the pair attaining a high value of 7.7950 on February 28, 2020. But there is a relatively downward trend since March, and a low value of 7.7498 was recorded on June 13, 2020, and currently, the USD/HKD pair trades on 7.7500. The Bid price or is 7.75016, while the Asked price is 7.74993.

The simple rule to follow when trading USD/HKD pair is that, when the quote of USD/HKD is rising, it means that USD is gaining momentum against the HKD. Similarly, when the rate of USD/HKD pair is falling, it shows that HKD is gaining strength as compared to USD. The USD/HKD quote is affected by the correlation between the economy of the U.S and Hong Kong. When trading the USD/HKD pair, it is advised to watch other currency pairs as well such as EUR/USD, GBP/USD, and USD/JPY as these currency pairs are correlated with the USD/HKD pair.

What causes price change in USD/HKD pair?

The USD/HKD pair is not widely or frequently traded in the Forex market, so traders should always take help from fundamental and technical analysis when wanting to trade the USD/HKD pair. The focus of the Hong Kong Monetary Authority (HKMA) is to ensure the stability of the HKD exchange rate, unlike other banks that serve to control interest rates and inflation. Since Hong Kong integrated with China, the value of HKD has increased, and the Hong Kong Dollar is seen as a gateway into the extensive economy of China.

If we take the U.S Dollar, then its value is managed by U.S Federal Reserve Bank, also known as the Fed, which not only sets the interest rates but also publishes monthly reports that determines the economy of the country. The exchange rate of USD/HKD pair is impacted by

  • The trade balance between the U.S.A and Hong Kong
  • Gross Domestic Product (GDP) of the two countries
  • Other factors such as interest rate, inflation, employment rate, and Consumer Price Index (CPI)

Apart from the main factors, the traders must also keep a close eye on the global political news, particularly those concerning China, as the events in China tend to have a direct impact on the Hong Kong Dollar and the exchange rate of the USD/HKD pair. The frequent price changes can affect the exchange rate of USD/HKD pairThe information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.

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