Taiwan’s Dollar Drops to One-Week Low as Export Outlook Worsens

Taiwan’s dollar dropped to the lowest level in more than a week on concern China’s economic slowdown and Europe’s debt crisis will hurt the island’s exports. Bonds were steady.

Taiwan’s overseas shipments fell 11.6 percent in July from a year earlier, the biggest decline since January, as growth in Chinese imports decelerated for a second month, separate reports showed last week. Official figures due tomorrow may show the euro area’s gross domestic product declined, according to a Bloomberg survey of economists.

“High exposure to China makes the Taiwan dollar vulnerable,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. The currency may deliver a “modest underperformance” among Asian exchange rates, he said.

Taiwan’s currency fell 0.1 percent to NT$30.005 against its U.S. counterpart in Taipei, according to Taipei Forex Inc. It touched NT$30.029 earlier, the weakest level since Aug. 3. The currency slid 1.9 percent in the past three months.

One-month implied volatility, a measure of exchange-rate swings used to price options, increased three basis points, or 0.03 percentage point, to 3.50 percent today. The Taiex index of shares dropped, snapping a five-day advance.

“Taiwan’s exports have been hit hard by Europe’s debt crisis this year,” said George Pu, a bond trader at Sinopac Securities Corp. in Taipei. “Trading has been quiet given the outlook is still not so certain.”

Japan’s economy expanded an annualized 1.4 percent in the three months through June, less than the median estimate of 2.3 percent in a Bloomberg News survey of economists and down from 5.5 percent the previous quarter, a Cabinet Office report showed in Tokyo today.

Interest Rates

Taiwan’s monetary authority kept the discount rate for 10- day loans at 1.875 percent in June and its next meeting is scheduled for September. South Korea’s central bank held off from reducing borrowing costs last week following an unexpected cut at a July policy meeting.

Faster inflation may deter Taiwan’s central bank from lowering interest rates to support the economy, according to Pu. The consumer price index rose 2.46 percent in July from a year earlier, the most since September 2008, the government reported last week.

“There’s more upside risks to interest rates now as global commodity prices are climbing,” Pu said. “The central bank is likely to hold rates unchanged this year. However, if exports worsen, there’s a chance for a rate reduction next year.”

The yield on Taiwan’s 1.25 percent bonds due March 2022 was steady at 1.176 percent today, according to Gretai Securities Market. The overnight money-market rate was 0.386 percent today, from last week’s 0.385 percent, according to a weighted average compiled by the Taiwan Interbank Money Centre.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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