Taiwan Dollar Volatility Retreats This Week on Intervention

A gauge of expected fluctuations in the Taiwan dollar retreated from a seven-month high this week on speculation the central bank intervened to prevent sharp swings in the currency as foreigners withdrew funds.

One-month implied volatility, a measure used to price options, fell 15 basis points this week to 4 percent as of 4:03 p.m. local time, data compiled by Bloomberg show. It declined three basis points today after reaching 4.56 percent on Jan. 28, the highest level since July 10, 2013.

The Taiwan dollar touched a two-year low on Feb. 5 as foreign funds sold a net $1.5 billion of local stocks, the most since 2007, exchange data show. The central bank told foreign investors to take funds out of the island if they have no plans to buy domestic equities, Economic Daily News reported today, citing Harry Yen, deputy director-general of the monetary authority’s foreign-exchange department in Taipei.

“The market is a bit calmer, the selling may be a bit overdone,” said Suan Teck Kin, an economist at United Overseas Bank Ltd. in Singapore. “I am sure the central bank is there to maintain order. They don’t want all this hot money sloshing around,” he said, adding the island’s dollar has already topped UOB’s year-end target of NT$30.3 against the greenback.

Record Reserves

Taiwan’s dollar fell 0.1 percent to NT$30.406 against its U.S. counterpart from Jan. 29, according to prices from Taipei Forex Inc. Local financial markets were shut from Jan. 30 to Feb. 4 for the Chinese New Year holidays. The currency climbed 0.1 percent today. The island’s central bank 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 on the Taiwan dollar advanced 0.1 percent this week and today to NT$30.260 against the greenback, data compiled by Bloomberg show.

The island’s foreign-exchange reserves reached a record $416.9 billion in January, central bank data showed yesterday.

The yield on the 1.125 percent notes due February 2019 dropped one basis point, or 0.01 percentage point, this week to 1.0920 percent in when-issued trading, prices from Gretai Securities Market show. The yield was steady today.

The overnight interbank lending rate slipped two basis points this week to 0.385 percent and was little changed today, a weighted average compiled by the Taiwan Interbank Money Center showed.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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