Taiwan Dollar Forwards Headed for Weekly Decline on Intervention

Taiwan dollar forwards headed for the worst week in more than two months on speculation the central bank will seek to curb a rally in the spot market that threatens exports.

Shipments (TWTREXPY), which account for about three-quarters of the economy, slumped 7 percent in September from a year earlier, official data showed this week, as the International Monetary Fund cut a forecast for the island’s 2013 growth to 2.2 percent from 3 percent. The spot rate gained 1.5 percent in the past month as global funds injected $3 billion into domestic stocks. Policy makers will step in to maintain an orderly market should irregular factors such as short-term capital flows cause excess volatility, the central bank said in a Sept. 26 statement.

“Intervention has intensified,” said Andrew Tsai, an economist at KGI Securities in Taipei. “September exports fell, so the market, corporations and the central bank are all concerned. The trend is still one of gradual appreciation, but just at a slower pace.”

One-month non-deliverable forwards fell 0.2 percent from a week ago to NT$29.335 per U.S. dollar as of 10:24 a.m. in Taipei, according to data compiled by Bloomberg. That’s the biggest decline since the five days ended Aug. 2. The contracts were little changed today.

Overseas investors bought $262 million more Taiwanese equities than they sold this week through Oct. 9, taking this year’s net purchases to $6.6 billion, exchange data show. Local markets were shut yesterday for a holiday.

Spot Market

In the spot market, the local dollar strengthened 0.4 percent this week and 0.5 percent today to NT$29.399 against the greenback, prices from Taipei Forex Inc. show.

The currency dropped 0.4 percent in the final 16 minutes of trading on Oct. 9 amid suspected intervention by the central bank. The monetary 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.

The yield on the 1.75 percent government notes due September 2023 increased one basis point this week and two basis points today to 1.67 percent, according to Gretai Securities Market.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 17 basis points, or 0.17 percentage point, this week and eight basis points today to 3.83 percent.

The overnight interbank lending rate was steady today and this week at 0.388 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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