Taiwan Dollar Forwards Drop Most in 2 Weeks on U.S. Budget Risk

Taiwan dollar forwards dropped the most in almost two weeks as signs U.S. budget negotiations are faltering damped demand for riskier assets. Government bonds were little changed.

White House Communications Director Dan Pfeiffer said President Barack Obama would veto a tax and spending proposal presented by House Speaker John Boehner because it would put “too big a burden on the middle class.” Democrats and Republicans are trying to come up with a deal to avert more than $600 billion in automatic spending cuts and tax increases. The Bank of Japan expanded an asset-purchase program today for the third time in four months.

“The U.S. fiscal cliff is politics driven and today’s news is hurting risk sentiment,” said Samson Tu, a Taipei-based fund manager at Uni-President Assets Management Corp., which oversees $700 million. “Japan’s monetary easing causes inflows in Taiwan, the central bank will probably be extra alert on its effect on the exchange rate.”

Three-month non-deliverable forwards weakened 0.1 percent to NT$28.823 per dollar as of 4:13 p.m. in Taipei, according to data compiled by Bloomberg. That’s the biggest drop since Dec. 7. The contracts are at a 1 percent premium to the spot rate, which slipped 0.06 percent to NT$29.120, based on Taipei Forex Inc. prices. The Taiwan dollar has appreciated 4 percent this year, poised for a fourth annual gain.

Intervention Mandate

Taiwan’s central bank has bought the greenback to counter gains in the island’s currency on most days in the past eight 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 yesterday, when he and his board kept the benchmark interest rate unchanged at 1.875 percent for a sixth straight meeting.

Export orders rose 11.1 percent in November from a year earlier, more than the median estimate of 3.85 percent in a Bloomberg News survey and the previous month’s 3.2 percent advance, official data showed today.

One-month implied volatility in the Taiwan dollar, a measure of expected moves in exchange rates used to price options, rose four basis points, or 0.04 percentage point, to 2.89 percent. It was 6.30 percent at the start of the year.

The yield on the government’s 1.125 percent bonds due September 2022 was at 1.149 percent, little changed from yesterday, according to Gretai Securities Market. The overnight interbank lending rate was 0.386 percent, from 0.385 percent yesterday, a weighted average compiled by the Taiwan Interbank Money Center shows.

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