Taiwan Dollar Forwards Decline This Week on Fed Taper Outlook

Taiwan dollar forwards fell the most in a month this week as the Federal Reserve signaled support for a plan to reduce stimulus.

Treasuries (USGG10YR) declined and the greenback strengthened this week as minutes of the Fed’s January meeting showed policy makers remain intent on cutting asset purchases in the absence of an “appreciable change” in the economic outlook. Data yesterday showed Taiwan’s current-account surplus widened to a record $17.1 billion last quarter from $14.9 billion in the previous period.

The Fed’s minutes “strengthened expectations that it will continue tapering, which boosted the U.S. dollar,” said Cindy Yu, an economist at Fubon Commercial Bank in Taipei. “If Treasury yields rise, emerging-market currencies will weaken, but Taiwan’s dollar will weaken less because of its current-account surplus.”

One-month non-deliverable forwards dropped 0.4 percent from Feb. 14 to NT$30.305 against the greenback as of 4:15 p.m. in Taipei, data compiled by Bloomberg show. That’s the biggest weekly decline since the five days ended Jan. 24. The contracts advanced 0.2 percent today.

In the spot market, the currency depreciated 0.2 percent this week to NT$30.395 against its U.S. counterpart, according to prices from Taipei Forex Inc. The local dollar was little changed today, after slipping 0.3 percent in the last 16 minutes of trading amid suspected central bank intervention. The monetary authority has sold the currency in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.

Bonds Decline

Overseas investors bought NT$27.8 billion ($916 million) more Taiwanese equities than they sold this week, exchange data show.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, increased nine basis points, or 0.09 percentage point, this week and dropped one basis point today to 3.67 percent, data compiled by Bloomberg show.

The yield on the 1 percent sovereign bonds due February 2019 rose one basis point this week to 1.081 percent and was little changed today, prices from Gretai Securities Market show. Taiwan sold NT$30 billion of 30-year notes today at 2.23 percent, lower than the 2.28 percent median estimate in a Bloomberg News survey of bond traders.

The overnight interbank lending rate was steady this week and today at 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

To contact the reporter on this story: Justina Lee in Taipei at jlee1489@bloomberg.net

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

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