The Hong Kong dollar on Monday continued to sit at the high end of its trading range against the US dollar despite an intervention late last week by the city's de facto central bank to weaken the unit.
The US dollar was buying HK$7.7506 in afternoon trade, after it hit its upper limit of HK$7.75 on Friday in New York, prompting the Hong Kong Monetary Authority to step in.
The HKMA said it sold $603 million worth of Hong Kong dollars in the foreign exchange market to curb its rise, which has been fuelled by weeks of capital inflows from overseas.
The Hong Kong dollar, which has been pegged to the greenback for 29 years, is typically allowed to trade in a narrow range between HK$7.75 and HK$7.85.
Authorities are obliged to act by buying or selling the local unit whenever it touches either side of the band.
Analysts said the first intervention in three years came with little surprise and expect more such moves in the near future as hopes for the global economy have picked up following monetary easing measures in the United States and Europe.
"It's natural because the Hong Kong dollar had been trading at 7.76 for weeks already. It's a very mechanical reaction to the market," Frances Cheung, senior strategist at French bank Credit Agricole in Hong Kong said.
"I would expect in the near term the Hong Kong dollar would probably still be trading at the strong side... the government may need to intervene again," she told AFP.
Hong Kong shares reversed early losses to close 0.7 percent higher on Monday, with dealers welcoming the intervention as a sign of confidence in the city's market as foreign investors move in.
The move also reignites talk over the local currency's peg to the greenback, with some leading officials, including the former head of the HKMA Joseph Yam, calling for a review.
Yam said in a research paper earlier this year it was time for other options to be explored, including a peg to a basket of currencies or a complete float.
But Australia's ANZ bank said in a research note that the intervention signalled the government was ready to defend the 29-year link to the US currency.
"We believe that the strong inflow into the HKD money market relates to the recovery of global investors' sentiment towards Hong Kong's stock market," the bank said.
The HKMA made multiple interventions to weaken the local currency in 2008 and 2009 at the height of the financial crisis as traders moved into the currency as it was seen as a safe haven.