Taiwan Dollar Forwards Weaken for Second Day on Outflow Concern

Taiwan dollar forwards declined for a second day on concern global investors will pull more money out of emerging markets as the U.S. prepares to pare stimulus.

Federal Reserve officials were “comfortable” with a plan to reduce asset purchases this year if the U.S. economy improves, according to minutes of their July meeting released last week. Overseas funds have sold $2 billion more Taiwanese shares than they bought this month, exchange data show. The Bloomberg Dollar Index, a gauge against 10 major trading partners, advanced 0.9 percent in the past week.

One-month non-deliverable forwards fell 0.1 percent to NT$29.95 per dollar as of 4:28 p.m. in Taipei, according to data compiled by Bloomberg. They touched NT$29.97 earlier, the weakest level since Aug. 22.

“It’s part of the overall outflows from emerging markets,” said Andrew Tsai, an economist at KGI Securities in Taipei. “Everyone is going to price in the impact of a strong U.S. dollar, but it’s going to be smaller in Taiwan. The central bank will limit the volatility of the currency.”

In the spot market, the local dollar weakened 0.2 percent to NT$30.06 against its U.S. counterpart, Taipei Forex Inc. prices show. It was trading 0.1 percent stronger 11 minutes before the 4 p.m. close. 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 dropped one basis point, or 0.01 percentage point, to 1.15 percent in Taipei, according to Gretai Securities Market prices.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose five basis points to 3.91 percent. The overnight interbank lending rate was unchanged 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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