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Taiwan Dollar Forwards Advance on Inflow Speculation; Bonds Fall

Taiwan dollar forwards advanced the most in a week after the Federal Reserve said it would press on with asset purchases, stoking speculation that more funds will flow into emerging markets. Government bonds fell.

The U.S. economy is still growing modestly, unemployment remains elevated and $40 billion in monthly purchases of mortgage-backed securities will be maintained, the Federal Open Market Committee said yesterday at the conclusion of a two-day meeting in Washington. Gains in the Taiwan dollar may be curbed by intervention from the central bank, said Suan Teck Kin, an economist at United Overseas Bank Ltd.

“The appreciation pressure for the Taiwan dollar is still there, partly stemming from all the quantitative easing,” said Suan, who is based in Singapore. “The central bank will try to resist that kind of pressure, at least make it orderly.”

One-month non-deliverable forwards rose 0.3 percent to NT$29.160 as of 4:15 p.m. in Taipei, according to data compiled by Bloomberg. The contracts are at a 0.4 percent premium to the spot rate.

In the spot market, the Taiwan dollar strengthened 0.2 percent to close at NT$29.280 against its U.S. counterpart, data from Taipei Forex Inc. showed. The currency was up 0.4 percent before paring its gain in the last minute of trading. One-month implied volatility, a measure of exchange-rate swings used to price options, declined one basis point, or 0.01 percentage point, to 3.54 percent.

Taiwan’s central bank has intervened to stem advances in the currency in the final minutes of trading on most days in the past five months, according to traders who asked not to be identified. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

Intervention Risk

Industrial production rose 3 percent in September from a year earlier, the Ministry of Economic Affairs in Taipei reported on Oct. 23, missing the median estimate in a Bloomberg survey for a 6.5 percent gain.

“The central bank won’t tolerate a strong currency at this point,” Suan said. “Industrial output was worse than expected.”

The yield on the government’s 2 percent bonds due July 2017 rose one basis point to 0.88 percent, according to Gretai Securities Market. The overnight interbank lending rate was little changed at 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

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