Taiwan’s dollar strengthened by the most since 2012 on speculation exporters are converting overseas earnings as the year ends.
The currency jumped 0.8 percent today to NT$29.796 against the greenback as of 11:13 a.m. in Taipei, Taipei Forex Inc. prices show. That’s the biggest one-day gain since Sept. 14, 2012. One-month non-deliverable forwards rose 0.5 percent to NT$29.774.
“It’s mainly exporters selling the U.S. dollar today and some companies are repatriating overseas profits back to Taiwan,” said Tarsicio Tong, a Taipei-based currency trader at Union Bank of Taiwan.
Global funds bought $9 billion more Taiwanese stocks than they sold this year through yesterday, exchange data show. Taiwan’s currency will appreciate 1.7 percent next year to NT$29.3, according to the median estimate of analysts surveyed by Bloomberg.
Taiwan’s dollar weakened 2.6 percent this year, the first annual decline in five years. It was dragged down by a slowing economy and as the Federal Reserve reduces the stimulus that has driven funds to emerging markets.
U.S. 10-year Treasury yields surged 121 basis points in 2013 with a quickening economic recovery allowing the Fed to decide to begin tapering its bond purchases in January. Taiwan last month trimmed its 2013 economic forecast to 1.74 percent from 2.31 percent as exports and industrial production slowed.
“I expect the Taiwan dollar will retreat to NT$30 or even weaker when the end-of-year demand is gone,” said Tong. “Fed tapering means Asian currencies are unlikely to perform well on expectations of a stronger dollar.”
Taiwan’s central bank held its benchmark interest rate for a 10th straight meeting last week to support growth as inflation eased. The monetary authority has kept borrowing costs unchanged since June 2011, the longest period of inaction.
The yield on Taiwan’s benchmark 10-year government bonds jumped 52 basis points, or 0.52 percentage point, this year to 1.68 percent. The rate on the 1 percent notes due January 2019 was little changed today at 1.118 percent in when-issued trading, according to Gretai Securities Market.
“Taiwan’s bonds followed Treasuries this year, but the jump in yields can’t be equal as our monetary policy is looser,” said Sam Chang, a Taipei-based bond trader at Hua Nan Securities Co. Bond yields will rise gradually next year as the Fed reduces its asset purchases and more sharply as it prepares to raise borrowing costs, Chang said.
The overnight interbank lending rate slipped two basis points this year to 0.390 percent, a weighted average compiled by the Taiwan Interbank Money Center showed. It was little changed today. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 51 basis points this year to 3.66 percent. It fell four basis points today.
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