Taiwan Dollar Has Biggest Weekly Advance in Seven Months on QE3

Taiwan’s dollar had the biggest weekly gain since February as a Federal Reserve plan to lift asset purchases spurred demand for emerging-market assets.

The currency touched the strongest level in four months after global funds bought $944 million more of the island’s stocks than they sold this week, taking 2012 net purchases to $1.5 billion, exchange data show. The Fed said yesterday it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt per month, and hold the federal funds rate near zero “at least through mid-2015.”

“Confirmation of QE3 yesterday gave the Taiwan dollar a strong boost,” said Tarsicio Tong, a foreign-exchange trader at Union Bank of Taiwan in Taipei. “The rally will probably last for another day or two, but after the news subsides traders will look at fundamentals again.”

Taiwan’s dollar rose 1.3 percent this week to NT$29.469 against its U.S. counterpart, according to Taipei Forex Inc. It advanced 0.8 percent today and touched NT$29.375 earlier, the strongest level since May 11.

One-month non-deliverable forwards added 1.1 percent to NT$29.34 against the greenback during the week, a 0.4 percent premium to the spot rate, according to data compiled by Bloomberg. The contracts gained 0.8 percent today.

The central bank, which has kept its benchmark rate at 1.875 percent since June 2011, will meet to review borrowing costs before the end of this month.

Government bonds declined. The yield on Taiwan’s 1.125 percent notes due September 2022 climbed one basis point, or 0.01 percentage point, to 1.19 percent this week, according to Gretai Securities Market. It was little changed today. The overnight money-market rate held at 0.39 percent today and this week, a weighted average compiled by the Taiwan Interbank Money Center shows.