The Hong Kong Dollar's gains against the US Dollar are anticipated to peak in July, driven by significant dividend payments from companies listed on the city's stock exchange.

The local currency appreciated over the four months leading up to June, marking its longest rising streak since 2020. This rally may continue, as July is the peak season for corporate payouts in Hong Kong this year, Bloomberg reports.

“The continuous southbound inflow and the ongoing dividend payout are likely to keep HK dollar rate anchored and render some support to it in the near term,” said Cindy Keung, an economist at OCBC Bank (Hong Kong) Ltd.

She went on to add that the currency may weaken after the pay out of dividends due to a muted outlook for loan demand.

According to data compiled by Bloomberg, China Construction Bank Corp and Industrial and Commercial Bank of China Ltd are among the companies scheduled to pay their final dividends for 2023 this month.

The total payout by members of the benchmark Hang Seng Index in 2024 is expected to reach a five-year high, as per the data.

Over half of the companies listed on the Hong Kong exchange are based in mainland China, implying that a portion of the funds required for dividend payments may be brought back to Hong Kong.

Furthermore, the Hong Kong Dollar has led Asia's currency rankings this year, benefiting from its peg to the US Dollar, which remains strong amid uncertainties regarding Federal Reserve rate cuts. 

The HK Dollar, which is permitted to trade in a range of 7.75 to 7.85 against the greenback, could test the midpoint of 7.80 by the end of July, according to DBS Bank global market strategist, Carie Li.

That said, it could be up against technical barriers beyond 7.79 considering the sluggish borrowing in the city.

“Loan demand is weak and real demand for Hong Kong Dollars is not too strong,” Li said. “Once the seasonal effect abates, it’s likely to see US Dollar to HK dollar trading back in the range of 7.82 to 7.84.”