Taiwan Dollar Gains on U.S. Budget Deal Optimism; Bonds Steady

Taiwan’s dollar strengthened on optimism U.S. politicians will agree on budget revisions needed to avoid the so-called fiscal cliff. Government bonds were little changed.

House Speaker John Boehner said he is optimistic lawmakers can “avert this crisis sooner rather than later,” referring to the $607 billion combination of tax increases and spending cuts due to take effect in January. President Barack Obama said a deal could be reached before Christmas as more Republicans are agreeing on a “balanced approach” to cut the deficit.

Taiwan’s dollar advanced 0.1 percent to NT$29.147 against its U.S. counterpart, contributing to this year’s 3.9 percent gain, based on Taipei Forex Inc. prices. One-month implied volatility, a measure of expected moves in exchange rates used to price options, was little changed at 3.3 percent.

“There’re some good news overnight on finding a solution to the fiscal cliff problem,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB. “But Asian currencies are likely to have limited moves as central banks want to tame volatilities in the market.”

Taiwan’s central bank has bought the greenback to counter gains in the island’s currency on most days in the past seven months, according to traders who asked not to be identified. The monetary authority’s mandate is to keep relative exchange-rate stability and to intervene in the event of abnormal moves, Governor Perng Fai-nan said on Sept. 26.

The yield on the government’s 1.125 percent bonds due September 2022 was little changed at 1.133 percent in Taipei, according to Gretai Securities Market. The overnight interbank lending rate was steady at 0.39 percent, according to a weighted average compiled by the Taiwan Interbank Money Center. A basis point is 0.01 percentage point.

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