Taiwan Dollar Forwards Complete Best Month in Eight on Inflows

Taiwan dollar forwards posted the biggest monthly gain since September as global funds boosted holdings of the island’s equities.

Seven of Asia’s 11 most-active currencies strengthened in May on speculation the U.S. central bank will keep interest rates low to spur growth in the world’s biggest economy. Federal Reserve Chair Janet Yellen said this month that monetary accommodation is still needed to meet inflation and employment goals. Overseas investors purchased $1.2 billion more Taiwanese stocks than they sold this month, exchange data show.

“As expectations for an earlier rate increase in the U.S. diminished, we saw yuan depreciation slowing and many Asian currencies rising,” said Michelle Tsai, a Taipei-based economist at Jih Sun Securities Co. “With Taiwan’s economy improving and funding still abundant, we’re optimistic about the stock market. Foreign inflows should continue.”

One-month non-deliverable forwards rose 0.8 percent in May to NT$29.980 against the greenback as of 5:09 p.m. in Taipei, according to data compiled by Bloomberg. The contracts were little changed today and reached NT$29.926, the highest level since April 10.

In the spot market, the currency strengthened 0.7 percent this month and 0.3 percent today to NT$30.050, based on prices from Taipei Forex Inc. The currency earlier touched NT$29.965, the strongest since April 10. The Taiex (TWSE) index of shares advanced 3.2 percent in May, the best performance since October, and reached the highest level today in more than three years.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 54 basis points in May and two basis points today to 3 percent.

Growth Forecast

Taiwan raised its 2014 economic growth forecast to 2.98 percent this month from a prediction of 2.82 percent made in February. An official report on May 23 showed gross domestic product rose 3.14 percent in the first quarter, compared with 2.88 percent in the previous three months.

The government sold two-year certificates of deposit at a record-low yield of 0.694 percent in May, suggesting a surplus of cash in the banking system. The overnight interbank lending rate increased one basis point today to 0.399 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.

Sovereign bonds rose this month, with the 10-year yield falling four basis points, or 0.04 percentage point, to 1.51 percent, according to prices from GreTai Securities Market. The rate rose two basis points today.

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

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

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