Taiwan Dollar Heads for Best Month in a Year on Capital Inflows

Taiwan’s dollar headed for the best month in a year after foreign investors boosted holdings of the island’s stocks. Government bonds rose.

The local dollar strengthened 1.4 percent this month and 1.9 percent this quarter to NT$29.570 against the greenback as of 10:24 a.m., prices from Taipei Forex Inc. show. That’s the biggest monthly advance since September 2012. The currency gained 0.3 percent today.

Global funds poured $4.3 billion into Taiwanese equities this month, taking the year’s net inflows to $5.69 billion, exchange data show. The local dollar touched a four-month high last week after the Federal Reserve unexpectedly refrained from tapering stimulus that’s buoyed emerging-market assets. Exports, which account for about three-quarters of the island’s economy, climbed for a fourth month in August as data from China and the U.S. signaled global demand is improving.

“Starting from May, although global funds reduced positions in emerging markets, funds were also reallocated from weaker to stronger places like South Korea and Taiwan,” said Andrew Tsai, an economist at KGI Securities in Taipei. “As we gradually enter an upcycle, investors also tend to turn to places that are export-oriented or highly sensitive to cyclical growth, which are also these two places.”

The currency pared a 0.4 percent gain during the last 12 minutes of trading on Sept. 27 amid suspected central bank intervention. The authority has sold the local dollar in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.

Bonds, Forwards

Asian stocks fell today as the U.S. government headed for a shutdown amid a budget stalemate and the next fiscal dispute over raising the debt ceiling loomed.

“With uncertainties such as the U.S. debt ceiling and a possible government shutdown, funds will be more conservative now,” Tsai added. “We’ll see a slowdown in the Taiwan dollar’s appreciation. In the short term, it may only rise to NT$29.35.”

One-month non-deliverable forwards in the Taiwan dollar rose 1.2 percent this month to NT$29.547 against the U.S. counterpart, according to data compiled by Bloomberg. The contracts declined 0.1 percent today.

The yield on the 1.75 percent government notes due September 2023 dropped five basis points this month to 1.678 percent, according to Gretai Securities Market. The rate fell five basis points today after surging 10 basis points on Sept. 27 on speculation the central bank will raise borrowing costs.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, added 10 basis points, or 0.1 percentage point, this month to 3.83 percent. The measure dropped three basis points today.

The overnight interbank lending rate was little changed this month and today 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: James Regan at jregan19@bloomberg.net

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