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Hong Kong dollar rates rise as Ant IPO anticipation tightens liquidity

10/21/2020 | 02:24am EST

* HKD rates creep higher even as HKMA pours in cash

* Two-week forwards hit highest since June

* Fortcoming ANT Group IPO could drive liquidity squeeze -analysts

SINGAPORE, Oct 21 (Reuters) - The cost of borrowing Hong Kong dollars rose on Wednesday and forward rates jumped as traders anticipated a rush for cash ahead of what is expected to be a record-breaking $35 billion dual listing by Ant Group.

The two-week Hong Kong Interbank Offered Rate rose for a third straight session on Wednesday to a three-week high of 0.36387%. It has gained 12.4 basis points this week.

China's Ant Group Co Ltd <IPO-ANTG.HK> has won approval from the Hong Kong Stock Exchange to list, two sources told Reuters this week, clearing the last regulatory hurdle for the gargantuan initial public offering.

The fintech company plans to list simultaneously in Hong Kong and on Shanghai's STAR Market in the coming weeks, sources said, in what could be the world's largest IPO - spurring demand for Hong Kong dollars in cash to buy the shares.

Flows into Hong Kong for such purchases and to take advantage of comparatively high interest rates have prompted the Hong Kong Monetary Authority to flood the market with Hong Kong dollars to keep the currency from strengthening beyond its peg.

Yet two-week forwards, which touched their dearest since early June on Wednesday, suggest traders still expect Hong Kong dollar liquidity to tighten in the coming weeks as bankers build out the Ant Group book.

"The Hong Kong dollar has been trading at the stronger end of the band now since June, and the Ant IPO is really adding to that pressure," said Steven Dooley, currency strategist at Western Union Business Solutions in Melbourne.

The HKMA has sold HK$98 billion ($12.7 billion) into the market in October so far to keep the currency below its upper limit of 7.75 per dollar. Already this year it has sold more Hong Kong dollars than in any full year since 2009. ($1 = 7.7500 Hong Kong dollars) (Reporting by Tom Westbrook in Singapore and Alun John in Hong Kong; Editing by Simon Cameron-Moore)

© Reuters 2020
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