Taiwan Dollar Heads for Worst Week in Three Months on Outflows

Taiwan’s dollar headed for its worst week in three months as speculation the Federal Reserve will cut stimulus spurred outflows from local equities.

Global funds sold $586 million more Taiwanese stocks than they bought this week through yesterday, exchange data show. U.S. jobs growth topped forecasts in October, a report showed last week, stoking bets the Fed may reduce asset purchases, which have buoyed emerging markets, as early as this year. Taiwan’s central bank Governor Perng Fai-nan told lawmakers this week it will maintain order in the currency market if there is excessive volatility.

Taiwan’s dollar fell 0.2 percent this week to NT$29.56 against the greenback as of 9:57 a.m. local time, prices from Taipei Forex Inc. show. That’s the biggest drop since the five days ended Aug. 3. The currency rose 0.2 percent today, having lost 0.1 percent in the final five minutes of trading yesterday on suspected 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.

“Equity flows are more volatile, and though there have been some dovish news this week, everyone thinks the Fed will taper in the next few months,” said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. “But the central bank’s policy stance and Taiwan’s fundamentals will make the Taiwan dollar relatively stable.”

Dovish Yellen

Fed Chairman-nominee Janet Yellen told lawmakers yesterday it’s important to maintain support to the U.S. economy as long as the recovery is fragile. A Bloomberg poll conducted Nov. 8 showed economists predict the Fed won’t start trimming its bond buying until March.

One-month non-deliverable forwards on the Taiwan dollar slipped 0.2 percent since Nov. 8 to NT$29.541, poised for their third weekly decline, according to data compiled by Bloomberg. The contracts advanced 0.1 percent today.

The yield on the government’s 1.25 percent bonds due October 2018 rose two basis points, or 0.02 percentage point, this week to 1.123 percent, according to Gretai Securities Market. The rate dropped one basis point today.

The central bank’s Perng said Nov. 11 that its exchange-rate policy can’t just serve the interests of exporters. The island will report its third-quarter current-account balance on Nov. 20. Taiwan had a $1.38 billion excess in the three months through June.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, increased seven basis points this week to 3.28 percent. The measure fell five basis points today.

The overnight interbank lending rate was little changed 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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