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Taiwan Dollar Forwards Snap Three-Day Drop on China PMI, Fed

Taiwan dollar one-month forwards halted a three-day drop after manufacturing in China unexpectedly increased in July and as the Federal Reserve pledged to maintain its stimulus program.

The forwards rallied from a three-week low after data showed the Purchasing Managers’ Index in Taiwan’s largest export market was at 50.3, above the level of 50 that divides contraction and expansion and higher than the 49.8 median forecast in a Bloomberg survey. While data in the U.S. showed the economy grew more than economists estimated in the second quarter, the Fed said yesterday that persistently low inflation poses risks to the nation’s outlook.

“The Fed came out saying they’re not going to taper anytime soon,” said Andy Ji, a strategist at Commonwealth Bank of Australia (CBA) in Singapore. “That should take out long positions in the U.S. dollar versus Taiwan. They were also encouraged by the Chinese PMI.”

One-month non-deliverable forwards climbed 0.2 percent to NT$29.971 as of 10:13 a.m. in Taipei, according to data compiled by Bloomberg. The contract reached NT$30.08 earlier, the weakest level since July 10.

In the onshore spot market, the Taiwan dollar strengthened 0.5 percent to NT$29.960, Taipei Forex Inc. prices show. The currency has lost 2.8 percent this year. 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.

The Federal Reserve said yesterday that its bond buying, which has spurred the flow of funds to emerging markets, will remain at $85 billion a month.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell four basis points, or 0.04 percentage point, to 3.96 percent.

The yield on the 0.875 percent government bonds due January 2018 fell three basis points to 1.09 percent in Taipei, 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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