Australian forex and CFD brokers AxiTrader and Pepperstone have announced that they are to suspend their Danish krone (DKK) and Hong Kong dollar (HKD) offerings for an unspecified amount of time. At a time of extreme measures in the aftermath of the Swiss franc black swan, market liquidity on fixed currencies has dried out.
Sources close to Forex Magnates confirmed that some liquidity providers have pulled back from offering markets in the above mentioned currencies, due to market concerns about the soundness of the pegs.
Both Australian brokers, AxiTrader and Pepperstone, are abandoning Hong Kong dollar and Danish krone crosses, citing lack of market makers for the pairs in the aftermath of the Swiss National Bank’s decision last week. There’s been a lot of speculation about which currency peg could go next, however, for the time being those are nothing but speculations.
As it is common perception across the financial markets, rumors are usually enough to trigger some sort of acton from market participants. That appears to be the case with the Danish krone and the Hong Kong dollar, which are both structurally different pegs than the Swiss franc floor.
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The Danish krone has been pegged to the European Exchange Rate Mechanism since the 80’s, while the Hong Kong dollar’s peg is in place at current levels since 1983. Both pegs are politically supported and have been essential to forming the current structure of these countries’ economies.
Unlike the case with Switzerland, where the currency floor has been in place as a temporary measure and has always been intended as such, the political system and the structure of the economies of Denmark and Hong Kong do not permit de-pegging without serious repercussions for those economies.
Liquidity providers seem to be over worried about these pairs and some brokers seemingly need to find alternatives.
Instead of focusing on politically sound pegs, the market might as well look at some other currencies. The Chinese yuan exchange rate has been managed by the People’s Bank of China for quite a while, and with risks rising that the Federal Reserve doesn’t raise interest rates in 2014, this peg is much more likely to come under attack sooner rather than later.