Taiwan Dollar Forwards Fall This Week on Possible Currency Curbs

Taiwan dollar forwards fell this week on speculation the central bank will curb appreciation in the currency to safeguard a recovery in exports. Government bonds were little changed.

European Central Bank President Mario Draghi said yesterday the euro-area’s economy will shrink 0.5 percent this year, more than the 0.4 percent contraction predicted in September. Taiwanese overseas sales rose 0.9 percent in November from a year earlier, after dropping in seven of the previous eight months, official data showed today. That compares with the 7.8 percent growth economists forecast in a Bloomberg survey.

“Draghi’s words mean the recovery will be slower than previously expected, damping exports to Europe,” said Wee-Khoon Chong, a Hong Kong-based strategist at Societe Generale SA. “More regional central banks are getting a bit more aggressive in intervening in the market to protect the recovery in exports.”

One-month non-deliverable forwards declined 0.1 percent this week to NT$29.06 per dollar as of 4:12 p.m. in Taipei, according to data compiled by Bloomberg. The contracts, which were little changed today, are at a 0.2 percent premium to the spot rate, which was steady today and during the five-day period at NT$29.125, based on Taipei Forex Inc. prices.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell five basis points, or 0.05 percentage point, to 3.25 percent this week and gained 11 basis points today.

Bonds Steady

President Barack Obama warned lawmakers yesterday that the U.S. economy will suffer unless there’s an agreement to avert more than $600 billion of spending cuts and tax increases set to take effect next year.

Taiwan’s central bank has bought the greenback to counter gains in the island’s currency on most days in the past seven months, according to traders who asked not to be identified. The monetary authority’s mandate is to keep relative exchange-rate stability and to intervene in the event of abnormal moves, Governor Perng Fai-Nan said on Sept. 26.

The yield on the government’s 1.125 percent bonds due September 2022 was steady at 1.136 percent today and this week, according to Gretai Securities Market. The overnight interbank lending rate was little changed at 0.385 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

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

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