Taiwan Dollar Touches 5-Month High as Greenback Demand Weakens

Taiwan’s dollar touched a five-month high as a partial U.S. government shutdown reduced demand for the greenback. Sovereign bonds rose.

The Bloomberg Dollar Index, which tracks the U.S. tender against a basket of 10 leading global currencies, fell as much as 0.4 percent yesterday, its biggest intraday decline in two weeks. The U.S. government began its first partial shutdown in 17 years yesterday after Congress failed to break a partisan deadlock on spending. Congressional leaders haven’t scheduled any further negotiations, fueling concern the impasse could bleed into the more consequential fight over how to raise the U.S. debt limit to avoid the first-ever default.

“U.S. lawmakers didn’t reach a compromise over fiscal policy as previously expected, which made the U.S. dollar weaken and Asian currencies rise,” said Samson Tu, a Taipei-based fund manager at Uni-President Assets Management Corp. “At the end of the quarter, exporters have also been selling foreign currencies for book-keeping purposes.”

Taiwan’s dollar touched NT$29.485 earlier today, the strongest level since May 9. It erased a 0.4 percent gain during the last four minutes of trading before closing little changed at NT$29.61 against its U.S. counterpart, prices from Taipei Forex Inc. show, 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

Central bank Governor Perng Fai-nan told legislators today that he didn’t imply in earlier statements that interest rates would rise. Inflation expectations and the global economy are the main factors determining borrowing costs, which may not necessarily follow U.S. monetary policy, he added.

The yield on government bonds surged last week on speculation the central bank would tighten policy. The rate on the 1.75 percent notes due September 2023 fell four basis points today to 1.66 percent, according to Gretai Securities Market.

One-month non-deliverable forwards on the local dollar were little changed at NT$29.445, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose two basis points, or 0.02 percentage point, to 3.82 percent.

The overnight interbank lending rate was little changed at 0.384 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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