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Taiwan Dollar Climbs to Seven-Week High on U.S. Budget Progress

Taiwan’s dollar rose to a seven-week high after the U.S. House of Representatives passed legislation averting some of $600 billion in automatic tax increases and spending cuts, boosting demand for riskier assets.

The MSCI Asia Pacific Index of shares rallied 1.1 percent. President Barack Obama said he will sign the bill passed by Congress that makes the George W. Bush-era income-tax cuts permanent for most workers while letting them expire for top earners. South Korea’s exports unexpectedly dropped 5.5 percent in December from a year earlier, official data showed yesterday.

“Passing the bill will avoid the drastic impact a fiscal cliff would have on the global economy,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB. “The disappointing Korea data shows Asia’s economic outlook remains uncertain. The central bank will probably try to maintain the relative competitiveness of the Taiwan dollar.”

The Taiwan dollar gained 0.2 percent to NT$29.09 against its U.S. counterpart, according to data from Taipei Forex Inc. It touched NT$28.998 earlier, the strongest level since Nov. 13.

The currency strengthened 4 percent in 2012 as overseas investors boosted their holdings of the island’s stocks by $4.9 billion, according to exchange data. The Taiwan dollar will drop to NT$29.2 by the end of March, Cheung predicts.

The monetary authority has bought the greenback to counter gains in the island’s currency on most days in the past nine months, according to traders who asked not to be identified. The central bank’s mandate is to keep relative exchange-rate stability and to intervene in the event of abnormal moves, Governor Perng Fai-Nan said on Dec. 19.

Volatility Eases

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in exchange rates used to price options, fell 11 basis points to 3.15 percent.

The yield on the 1.125 percent bonds due September 2022 fell one basis point, or 0.01 percentage point, to 1.158 percent, according to Gretai Securities Market.

The overnight interbank lending fell two basis points to 0.389 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

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