Taiwan Dollar Completes Monthly Gain on Inflows; Bonds Steady

Taiwan’s dollar completed its first monthly gain since April as global investors poured funds into the island’s stocks on optimism China will unveil stimulus measures to counter an economic slowdown.

Global funds bought $3 billion more Taiwanese stocks than they sold so far in August, the biggest monthly net purchases 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. China, the world’s second-biggest economy, is the island’s biggest trade partner.

The currency advanced 0.2 percent this month to NT$29.966 against its U.S. counterpart, according to Taipei Forex Inc. It gained 0.1 percent this week and from yesterday.

“We’re still seeing foreign money coming in,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan in Taipei. “But it doesn’t change the fact that Taiwan’s economy is in a very bad shape. There aren’t any fundamentals supporting an appreciation.”

Taiwan and China signed a memorandum of understanding to start yuan trading in Taipei, the island’s central bank Governor Perng Fai-nan said today. The two monetary authorities will each appoint a clearing bank, he said. Taiwan will create a new yuan spot rate denoted by CNT, similar to CNH that refers to yuan trade in Hong Kong, Perng said in a press briefing today.

Growth Outlook

Taiwan cut its 2012 economic growth forecast this month to 1.66 percent from 2.08 percent, after gross domestic product shrank more than initially estimated in the second quarter. Export orders fell 4.39 percent in July from a year earlier, a fifth straight monthly decline, data showed Aug. 20.

Taiwan’s government bonds were little changed for the day, week and month. The yield on the island’s 1.25 percent notes due March 2022 was at 1.183 percent, according to Gretai Securities Market. The rate was 1.176 percent at the end of July.

One-month implied volatility, a measure of exchange-rate swings used to price options, rose 20 basis points, or 0.2 percentage point, today to 3.6 percent. The overnight money-market rate was steady at 0.387 percent, according to a weighted average compiled by the Taiwan Interbank Money Centre.

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