Hong Kong is one of the most advanced cities in Asia. The city operates through what is known as ‘one country, two systems.’ This is a unique system which gives the city the ability to choose its leaders without the interference of China. As a result, the city has its own currency, and its residents are fully Chinese citizens.
After working well for more than 20 years, China has continued to increase its influence in the city. In recent months, the country has opened the world’s longest bridge that connects the city to Macau and Chinese mainland. China is also in the process of creating the Greater Bay Area. This GDP of this area reached $1.36 trillion in 2016 from a population of 66 million. The area is planned to be similar to other successful Bay cities like New York and San Francisco. Hong Kong in itself has a GDP of more than $370 billion.
The excitement about the increased investments in Hong Kong and the fact that China is considering issuing debt in the city has led the Hong Kong dollar to surge. In the past three months, the currency has gained by 0.3% against the USD. However, recent political risks in the city and the rise of Chinese influence has worried a good number of investors. In the recent Big Read by Financial Times, the authors said that:
If Beijing’s influence continues to grow in the medium term, Hong Kong risks losing its preferential access to global markets, which is premised on the maintenance of the promised “high degree of autonomy”.
As of this writing, the USD/HKD pair reached 7.8077, which is slightly higher than the low of 0.8050. The price is below the 25-day and 50-day EMA and along the lower band of the Bollinger Band. The RSI is at 25, which is slightly higher than the previous low of 15 while the momentum indicator is at significant lows. Therefore, there is a likelihood that the pair will continue moving lower in the short term.