Taiwan Dollar Poised for Monthly Advance on China Stimulus Bets

Taiwan’s dollar was set for its first monthly advance since April on speculation policy makers in China, the island’s biggest trade partner, will unveil stimulus measures to counter an economic slowdown.

Global funds bought $3.1 billion more Taiwanese stocks than they sold so far in August, the biggest monthly net purchase since April 2011, according to exchange data. Chinese Premier Wen Jiabao urged extra measures to help meet economic targets as he toured Guangdong, the nation’s biggest exporting province, the official Xinhua News Agency said Aug. 25.

“We’ve been seeing rapid capital inflows into Taiwan betting on stimulus measures by global policy makers,” said Ma Tieying, an economist at DBS Group Holdings Ltd. in Singapore. The risk is that if the measures don’t come through, “investors will go back and look at fundamentals and the Taiwan dollar’s temporary appreciation might reverse.”

The currency advanced 0.1 percent this month to NT$29.986 against its U.S. counterpart, according to Taipei Forex Inc. It touched this week’s high of NT$29.84 earlier and closed little changed on the day.

Export Orders

Official data on Aug. 20 showed Taiwan’s export orders fell 4.39 percent in July from a year earlier, a fifth straight monthly decline. Pacific Investment Management Co.’s Bill Gross said yesterday the Federal Reserve will add to monetary stimulus “relatively soon.” The comments came two days before Federal Reserve Chairman Ben S. Bernanke speaks in Jackson Hole, Wyoming.

Taiwan’s government bonds were little changed. The yield on the island’s 1.25 percent notes due March 2022 was at 1.182 percent, from 1.181 percent yesterday and 1.176 percent last month, according to Gretai Securities Market.

“It’s not just whether the Fed will push QE3, traders are waiting to see how big the program will be,” said Stanford Chen, a Taipei-based fixed-income manager at KGI Securities Co. “In front of all these uncertainties, traders are staying put.”

One-month implied volatility, a measure of exchange-rate swings used to price options, fell 23 basis points in August and climbed seven basis points today to 3.4 percent.

The overnight money-market rate was steady at 0.388 percent, according to a weighted average compiled by the Taiwan Interbank Money Centre. A basis point is 0.01 percentage point.

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