Taiwan Dollar Volatility at Five-Year Low on Intervention Risk

A gauge of expected fluctuations in Taiwan’s dollar fell to a five-year low on speculation policy makers will curb the pace of appreciation to protect exporters.

The island’s central bank is more likely to weaken its currency should the South Korean won or Japanese yen depreciate, according to First Securities Inc. in Taipei. Korea’s Finance Minister Bahk Jae Wan said today the won’s recent gains could hurt companies such as automakers. Japan, South Korea and Taiwan compete in the world market for electronic products.

“Taiwan watches the South Korean won,” said Eric Hsing, a fixed-income trader at First Securities. “If the yen depreciates, Korea will weaken its currency too.”

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped eight basis points, or 0.08 percentage point, to 2.72 percent as of 10:43 a.m. local time. It reached 2.6 percent earlier, the lowest level since September 2007.

Taiwan’s monetary authority has sold its currency to counter gains on most days in the past nine months, according to traders, who asked not to be identified. The central bank wants to have limited moves in the exchange rate and yields because the economy is export-driven, Hsing said.

Export Orders

Taiwan’s dollar rose 0.3 percent to NT$28.991 against its U.S. counterpart, based on prices from Taipei Forex Inc. The currency advanced 4 percent last year, more than the 0.3 percent in 2011, and gained 0.5 percent so far in 2013. The South Korean won has dropped 0.1 percent and the yen 3 percent.

The island’s jobless rate fell to 4.22 percent in December, the lowest level since April 2012, the National Statistics Office in Taipei reported today. Export orders, an indicator of shipments in the next one to three months, increased for a fourth month, rising 8.5 percent from a year earlier, government figures showed yesterday.

Japanese Prime Minister Shinzo Abe has pressed his central bank, which concludes a two-day meeting today, to expand monetary stimulus to revive economic growth.

The yield on Taiwan’s 1.125 percent government bonds due September 2022 was little changed at 1.165 percent, the highest level in a week, according to Gretai Securities Market.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

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

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