A period of weakness for the Hong Kong dollar appears to be coming to an end, and that has investors watching.
The Hong Kong dollar is only allowed to trade between HK$7.75 and HK$7.85 to its U.S. counterpart and has been languishing at the weak extreme of its range for much of 2018. But on Friday it recorded its biggest one-day increase in 15 years to as strong as about HK$7.79. Although it's given some of those gains back — trading Wednesday around HK$7.81 per U.S. dollar — it's still markedly stronger than it had been.
Despite the relatively small size of Hong Kong's overall economy its currency punches far above its weight: It was the world's 13th most traded by value, according to a 2016 Bank for International Settlements report. And while its exchange rate is limited to a narrow band against the U.S. dollar, fluctuations can reveal brewing changes in the local economy.
Hong Kong has been a special administrative region of China since the end of British colonial rule in 1997, and its currency has stood as a symbol of the city's economic autonomy. Beyond that, it's also a significant indicator for regional investors.
The strength of the Hong Kong dollar has a "pretty high correlation" with the stock market, Jackson Wong, associate director at Huarong International Financial Holdings, told CNBC on Wednesday.
"When you look at history, when the Hong Kong dollar was strong the market usually performed better," he said, adding that a strengthening local currency signals increasing capital inflows into the economy.
That could be good news for Hong Kong, where the Hang Seng Index has declined about 7 percent so far this year.