Taiwan Dollar Gains for Third Week on Stock Inflows; Bonds Rise

Taiwan’s dollar strengthened for a third week as the island’s shares rallied to a 21-month high. Government bonds rose after economic growth trailed estimates.

Overseas investors bought $1.2 billion more local equities than they sold this week, the biggest inflow in five months, exchange data show. The Taiex (TWSE) index climbed 1.4 percent during the five days and reached the highest level since Aug. 4, 2011.

“There seems to be a divergence in sentiment for bond and stock investors,” said Albert Lee, a fixed-income trader in Taipei at Cathay United Bank Co. “Bond investors are certainly more concerned about fundamentals and the economic outlook.”

The Taiwan dollar advanced 0.3 percent this week to NT$29.61 against its U.S. counterpart, Taipei Forex Inc. prices show. The currency touched NT$29.42 on April 30, the strongest level since Jan. 28, and rose 0.1 percent today.

The local dollar was trading 0.4 percent stronger two minutes before the 4 p.m. close. The central bank has sold the currency in the run-up to the close on most days in the past year, according to traders who asked not to be identified.

Taiwan’s gross domestic product increased 1.54 percent in the first quarter from a year earlier, less than 3.72 percent in the previous three months and the 3.1 percent forecast by economists surveyed by Bloomberg, official data showed April 30.

DBS Group Holdings Ltd. cut its 2013 growth estimate to 3.3 percent from 4.2 percent, saying weak export demand will continue this quarter, according to a research report today.

Bonds Rally

One-month non-deliverable forwards were little changed today and this week at NT$29.531 against the greenback, compiled by Bloomberg show. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, climbed 29 basis points, or 0.29 percentage point, to 3.6 percent from the end of last week. It was steady today.

The yield on the 0.875 percent bonds due January 2018 fell four basis points to 0.861 percent this week, according to Gretai Securities Market prices. The yield dropped two basis points today and touched 0.86 percent, the lowest level for a benchmark five-year security since July 26.

The overnight interbank lending rate was steady today and this week 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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