A GAUGE of Hong Kong’s key borrowing rates has caught up with its new US equivalents, diminishing at least temporarily the appeal of a popular carry trade that borrows the local currency to buy the greenback.

The one-month Hong Kong interbank offered rate, or Hibor, has largely pulled even with the one-month implied US dollar Secured Overnight Financing Rate, a reference rate that’s an alternative to US dollar Libor. Hibor had been below the US rate since around year-end, but surged recently amid demand for the Hong Kong dollar for dividend payments as is typical at this time of year.

The elevated Hibor levels are cooling pressure on Hong Kong’s dollar by reducing the attractiveness of selling it against the greenback. Still, Hibor looks set to retreat again after the seasonal effect abates around July – and with the Federal Reserve projecting further interest-rate hikes before year-end, Hibor may drop below SOFR again soon, according to analysts.

“Hong Kong dollar rates will probably come off after June-end as the seasonal effect wanes,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong. BLOOMBERG