Taiwan Dollar Volatility at Nine-Month Low on Intervention Risk

A gauge of expected fluctuations in Taiwan’s dollar touched a nine-month low on speculation the central bank will curb gains in the currency as the economy grows at the slowest pace in a year. Government bonds fell.

Taiwan’s gross domestic product rose 1.6 percent from a year earlier last quarter, official data showed last week, compared with the 2.6 percent median estimate in a Bloomberg survey of economists. Growth has slowed as markets for exports, which account for about three-quarters of the island’s economy, weakened across Asia and China changed its economic policies, central bank governor Perng Fai-nan said last week. The local dollar gained 0.7 percent in October as foreigners poured $2.8 billion into domestic stocks.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 12 basis points, or 0.12 percentage point, today to 3.08 percent as of 10:45 a.m. in Taipei. The measure touched 3.02 percent earlier today, the lowest level since Jan. 28.

“The central bank may intervene more actively,” said Tarsicio Tong, a Taipei-based currency trader at Union Bank of Taiwan. “It looks like even 2 percent annual growth may be unreachable. These aren’t good conditions for appreciation.”

The government forecast in August the economy will expand 2.3 percent this year.

Taiwan’s dollar strengthened 0.2 percent to NT$29.42 against the greenback, prices from Taipei Forex Inc. show. The currency was trading at NT$29.41 before sliding 0.2 percent in the last 25 minutes of trading on Nov. 1 amid suspected central bank intervention. One-month non-deliverable forwards were little changed at NT$29.381, data compiled by Bloomberg show.

Currency Intervention

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 central bank wants to keep the exchange rate around NT$29.40 per U.S. dollar, Tong added.

The U.S. will release data on initial jobless claims on Nov. 7. The Institute for Supply Management’s index, a manufacturing gauge, rose to a two-year high in October, fueling speculation the Federal Reserve will cut its stimulus.

The yield on the 1.25 percent government notes due October 2018 rose two basis points to 1.1385 percent, according to Gretai Securities Market. That’s the highest level since Oct. 16.

“As U.S. economic data has improved recently, investors have been more cautious about the Fed’s tapering prospects ahead of this week’s jobs report,” said Sandy Liao, a fixed-income trader at KGI Securities Co. in Taipei.

The overnight interbank lending rate was steady at 0.389 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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