Taiwan Dollar Forwards Retreat as Fed Debates Bond Buying

Taiwan dollar forwards fell the most in almost two weeks after several Federal Reserve policy makers said the central bank should be ready to vary the pace of its monthly debt buying that boosts supply of the greenback.

The Taiex index of stocks snapped a four-day rally after the minutes of the Federal Open Market Committee’s Jan. 29-30 meeting showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in the U.S. labor market. Chinese Premier Wen Jiabao called on local authorities to “decisively” curb real-estate speculation and take steps to rein in the property market after data showed prices surged the most in two years last month. Bonds were steady.

“The FOMC minutes had a surprisingly clear element of hawkish flavor,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “It’s a key risk to emerging-market assets as it would imply less funds available to purchase them than what is currently priced in.”

One-month non-deliverable forwards weakened 0.4 percent to NT$29.65 versus the dollar as of 4:23 p.m. local time, the biggest loss since Feb. 8, data compiled by Bloomberg show. In the spot market, the currency fell 0.3 percent to NT$29.68 against its U.S. counterpart, according to prices from Taipei Forex Inc.

The central bank has sold the local currency near the close on most days in the past 11 months, according to traders who asked not to be identified.

Economic Growth

The island’s economy expanded 3.4 percent last quarter from a year earlier, according to the median estimate in a Bloomberg survey before finalized official data due Feb. 22. Gross domestic product increased 0.98 percent in the preceding three months.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, rose 13 basis points, or 0.13 percentage point, to 5 percent, according to data compiled by Bloomberg.

The yield on the 1.125 percent bonds due March 2023 was little changed at 1.211 percent, according to Gretai Securities Market. The overnight interbank lending rate was steady at 0.386 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

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

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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