Taiwan Dollar Forwards Decline This Week on Capital Outflows

Taiwan dollar forwards declined this week after overseas investors pulled money from the island on concern the Federal Reserve will soon cut stimulus that has buoyed emerging-market assets.

Global funds sold $333 million more Taiwanese shares than they bought this week, taking net sales this month to $1.9 billion, according to exchange data. Fed policy makers were “comfortable” with a plan to scale back asset purchases this year as the world’s largest economy improves, according to minutes of their July meeting released on Aug. 21.

One-month non-deliverable forwards fell 0.1 percent this week to NT$29.895 per dollar as of 4:38 p.m. in Taipei, after advancing in the previous two periods, according to data compiled by Bloomberg. The contracts gained 0.2 percent today.

“So much money is leaving Asia,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan (2838) in Taipei. Should the island see more fund outflows, “the Taiwan dollar can weaken beyond $30. But the central bank won’t let it weaken too much because it may affect inflation.”

Industrial production rose 2.1 percent in July from a year earlier, beating all 16 economists’ estimates in a Bloomberg News survey.

In the spot market, the local dollar weakened 0.2 percent since Aug. 16 to NT$30.053 against its U.S. counterpart, Taipei Forex Inc. prices show. It was trading 0.5 percent stronger 18 minutes before the 4 p.m. close today, and closed up 0.3 percent. The central bank has sold the currency in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.

The yield on the 0.875 percent notes due January 2018 was little changed this week and today at 1.17 percent in Taipei, according to Gretai Security Market prices.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, climbed 51 basis points since Aug. 16 to 3.98 percent. The overnight interbank lending rate was unchanged from a week ago at 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net

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

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