Taiwan Dollar Forwards Drop as Export Outlook Dims; Bonds Rise

Taiwan dollar fell the most in three weeks after reports stoked concern China’s economic rebound is losing momentum, damping the outlook for exports to the island’s biggest market. Government bonds gained.

China’s Purchasing Managers’ Index dropped to a five-month low of 50.1 in February, while a separate gauge compiled by HSBC Holdings Plc and Markit Economics fell to a four-month low of 50.4, reports showed March 1. Economists forecast data on March 7 will show Taiwan’s overseas shipments shrank 8.1 percent last month from a year earlier, after rising 21.8 percent in January, based on the median estimate in a Bloomberg News survey.

“The disappointing PMIs were in part due to the seasonal Lunar holidays but for overall trade demand we expect the improvement to be quite modest,” said Jackit Wong, a regional economist in Hong Kong at Natixis Asia Ltd. “Uncertainties remain, with Italian elections and U.S. spending cuts” in the backdrop, she said.

The local dollar fell 0.4 percent to NT$29.77 per dollar, according to Taipei Forex Inc., the most since Feb. 8. One-month non-deliverable forwards declined 0.3 percent to NT$29.730, according to data compiled by Bloomberg.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, increased six basis points, or 0.06 percentage point, to 4.81 percent, data compiled by Bloomberg show.

Exports may be crimped by the Feb. 9-15 Lunar New Year holidays, Wong said. Market sentiment may be downbeat in the short term ahead of March data, she added.

The yield on the 1.125 percent government bonds due September 2022 dropped one basis point to 1.201 percent, the lowest in a month for 10-year benchmark, according to Gretai Securities Market. The overnight interbank lending rate was steady at 0.388 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

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

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