Billionaire investor Ackman bets Hong Kong dollar peg can break

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SINGAPORE (Reuters) - Billionaire investor Bill Ackman said he's betting the Hong Kong dollar will fall and that its peg to the U.S. dollar can break, the latest big money manager to take a public short bet as U.S. rate hikes turn the blowtorch on Hong Kong's currency system.

"We have a large notional short position against the Hong Kong dollar through the ownership of put options," he said on Twitter. "The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks."

The Hong Kong dollar has been pegged in a tight band between 7.75 and 7.85 per greenback for nearly four decades and tends to face pressure - and thus far unsuccessful speculative challenges - every time U.S. interest rates go up.

The Hong Kong Monetary Authority maintains the peg by moving interest rates in lockstep with the U.S. Federal Reserve and by currency intervention, which drains Hong Kong liquidity and is designed to drive local rates higher still flows stabilise the local dollar.

The HKMA did not immediately respond to Reuters' request for comment.

Some economists say the speed and scale of this hiking cycle is the sternest test yet, particularly as Chinese growth falters, which makes for an uncomfortable time to be raising rates.

U.S. fund manager Kyle Bass has long bet against the Hong Kong dollar and told Nikkei in July he expects the peg to break. The details of his position or of Ackman's were unclear and neither Bass' Hayman Capital Management nor Ackman's fund Pershing Square, immediately responded to requests for comment.

Liquidity is also draining very fast as the HKMA has sucked up about $30 billion in some 40 rounds of intervention since the Fed began raising rates in March.

Earlier this month, the aggregate balance - a key gauge of cash in the banking system - fell below HK$100 billion ($12.8 billion) for the first time since 2020 and the one-month Hong Kong Interbank Offer Rate stands at a 14-year high.

Since May, the Hong Kong dollar has been pinned near the weaker end of its band, though has lifted a bit in recent weeks as markets start to price a peak in U.S. rates. It was last at 7.8142 per dollar.

GRAPHIC: Hong Kong rates, liquidity (https://fingfx.thomsonreuters.com/gfx/mkt/znvnbdmnzvl/Pasted%20image%201667444840422.png)

($1 = 7.8132 Hong Kong dollars)