Taiwan Dollar Set for Worst Week Since June as Fed Cuts Stimulus

Taiwan’s dollar headed for its biggest weekly loss since June after the Federal Reserve said it will reduce stimulus that’s spurred demand for emerging-market assets. Government bonds gained.

The Fed will cut its monthly bond purchases to $75 billion from $85 billion in January, Chairman Ben S. Bernanke said this week. The program is likely to be lowered in $10 billion increments over the next seven central bank meetings before ending in December 2014, the median forecast of economists in a Bloomberg survey shows. Taiwan’s record foreign reserves will serve as a buffer against the tapering, according to Jih Sun Securities Co.

“As the Fed tapers its stimulus gradually, funds will move from emerging to developed markets,” said Michelle Tsai, a Taipei-based economist at Jih Sun Securities. “No Asian economy will be able to avoid this, but places with higher foreign reserves like Taiwan will be relatively resilient.”

Taiwan’s dollar depreciated 0.7 percent this week to NT$29.910 against the greenback as of 10:07 a.m. in Taipei, prices from Taipei Forex Inc. show. That’s the biggest weekly decline since the five days ended June 21.

Overseas funds sold $5.3 million more Taiwanese stocks than they bought this week, trimming net purchases this month to $841 million, exchange data show. The central bank will focus on preventing large fund outflows at next week’s quarterly board meeting, the Economic Daily News reported, citing unidentified government officials.

Bond Calendar

Taiwan’s foreign-exchange reserves climbed to $415 billion this year, from $403 billion in December 2012, official data show. That compares with $266 billion in January 2007 before the onset of the global financial crisis.

The island’s currency advanced 0.1 percent today. It slipped 0.4 percent in the last 15 minutes of trading yesterday amid suspected central bank 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.

One-month non-deliverable forwards for Taiwan’s currency declined 1 percent this week to NT$29.868 per dollar, data compiled by Bloomberg show. That’s the biggest five-day slide since June 21 and the weakest level since Sept. 2. The contracts were little changed today.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, jumped 34 basis points this week and 18 basis points today to 3.52 percent.

Taiwan’s government will announce next year’s bond issuance plan on Dec. 23. The yield on the 1.25 percent sovereign notes due October 2018 dropped four basis points, or 0.04 percentage point, this week to 1.048 percent, according to Gretai Securities Market. The rate was little changed today.

The central bank will announce its policy rate decision on Dec. 26, with all 22 economists surveyed by Bloomberg predicting borrowing costs will be kept at 1.875 percent. The overnight interbank lending rate was little changed this week and today 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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