Policymakers in Hong Kong have been riding their luck. They can be thankful for a dovish US Federal Reserve, which cut rates three times last year. That reduced the pressure on the Hong Kong dollar at a time of deepening political crisis in the Chinese territory. As the Hong Kong Monetary Authority runs out of options, the question is how long its currency can hold the line.

For the past 37 years, the city has run a managed peg, tying the Hong Kong currency to the US dollar. Currently the greenback trades in a narrow band between HK$7.75-7.85. And given that the currencies are pegged, one should expect differences in market interest rates to be marginal.

But it is this spread between US and Hong Kong market interest rates that incentivises traders to hold one currency relative to the other. If there is demand for the Hong Kong dollar, the currency will test the strong boundary of its tradable range. If this happens, the Hong Kong Monetary Authority steps in and prints as many new Hong Kond dollars as it thinks necessary to depress the interest rate.