Taiwan Dollar Forwards Weaken on Speculation Gains May Be Curbed

Taiwan dollar forwards fell from a three-week high on speculation the central bank will seek to curb gains to support exports as demand from Europe and China slows. Government bonds were steady before an auction.

The contracts pared a two-day gain before reports today that may show Germany’s industrial production and overseas sales fell in August. Manufacturing in China, the island’s biggest export market, shrank for a second month in September, according to figures released Oct. 1. Taiwan’s overseas sales rose 10.4 percent in September, data released at the close of trading showed, after contracting in each of the previous six months.

“The appreciation we’ve been seeing in the past month is due to foreign funds flowing in, but not because the economic fundamentals have improved,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan in Taipei. “The central bank wouldn’t want the Taiwan dollar to be too strong” as the export outlook remains weak, he said.

One-month non-deliverable forwards dropped 0.3 percent to NT$29.28 per dollar in Taipei, according to data compiled by Bloomberg. In the spot market, the local currency fell 0.1 percent to NT$29.402 after rising as much as 0.5 percent. One-month implied volatility, a measure of exchange-rate swings used to price options, rose two basis points to 3.81 percent.

Overseas investors bought $262 million more local shares than they sold last week, bringing the tally to $3.03 billion this year, exchange data show.

Trade Report

Government bonds fell after a finance ministry report today showed exports rose 10.4 percent in September from a year earlier, beating the median estimate for a 1 percent gain in a Bloomberg News survey.

The yield on the 1.125 percent bonds due July 2017 rose to 0.895 percent from 0.883 percent on Oct. 5, according to Gretai Securities Market. The government sold NT$30 billion ($1 billion) of five-year bonds at an average yield of 0.881 percent today versus 0.795 percent at a July 17 auction.

The overnight money-market rate was steady at 0.389 percent, a weighted average compiled by the Taiwan Interbank Money Center shows, unchanged from Oct. 5.

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