Will Ackman succeed where George Soros failed?

The USD/HKD price plunged to the lowest level this year even after Bill Ackman revealed a short position on the Hong Kong dollar. It dropped to a low of 7.800, which was much lower than the year-to-date high of 7.8500.

Bill Ackman shorts HKD

The USD/HKD exchange rate crashed on Thursday after Bill Ackman warned about the Hong Kong dollar peg. In a statement, he said that he had placed a “large notional short position” against the HKD. This means that his investment will only be profitable if the currency plunges.

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Bill Ackman is not the only mainstream hedge fund manager to predict the collapse of the peg. Kyle Bass, the founder of Hyman Capital, lost millions of dollars when his prediction of the peg failed. George Soros, who broke the Bank of England, also lost millions betting against the currency.

This is a very thoughtful piece and I agree. We have a large notional short position against the Hong Kong dollar through the ownership of put options. The peg no longer makes sense for Hong Kong and it is only a matter of time before it breaks. https://t.co/efp62TuB03
— Bill Ackman (@BillAckman) November 24, 2022

As I wrote in this article, the Hong Kong Monetary Authority (HKMA) has the mandate to ensure that the USD/HKD trades between 7.85 and 7.75. It works to enforce this peg by buying or selling HKD or the US dollar depending on market conditions.

In 2022, the HKMA has spent billions intervening in the market to protect the Hong Kong dollar peg. As a result, the USD/HKD price stayed at the upper side of the band even as emerging market currencies like the Chinese yuan crashed. It also hiked interest rates above those of the United States in a bid to make the HKD more attractive.

Analysts believe that Bill Ackman’s bet against the Hong Kong dollar will not succeed. For one, Hong Kong holds billions of dollars, which it can deploy to defend the currency. In a note, an analyst at Standard Chartered said that he did not see any signs of stress on the peg.

Bill Acknan has avoided placing short trades in the past few years. This happened after he lost more than $1 billion shorting Herbalife, a company he termed a pyramid scheme.

USD/HKD forecast

The four-hour chart shows that the USD/HKD price made a bearish breakout this week. As it dropped, the pair managed to move below the important support level at 7.8280, the lowest level on August 12. It also dropped below the 50-day moving average. Therefore, there is a likelihood that the pair will continue falling as bears target the key support at 7.78.