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Taiwan Dollar Erases Gain on Intervention Concern; Bonds Advance

The Taiwan dollar retreated from near a 17-month high on speculation the central bank intervened to curb gains that push up the cost of exports. Bonds rose.

The currency earlier strengthened as much as 0.4 percent on optimism an economic recovery will boost demand for the island’s goods. Taiwan’s monetary authority has sold the currency to damp appreciation on most days in the past nine months, according to traders who asked not to be identified.

“The slowdown in external demand has bottomed out, which could support the growth outlook and risk-on sentiment in the markets,” said Andrew Tsai, an economist in Taipei at KGI Securities Co. “For the currency, however, the upside is still being monitored” through central bank intervention, he said.

The local dollar closed at NT$29.056 per dollar against its U.S. counterpart, compared with NT$29.058 yesterday, according to Taipei Forex Inc. It reached NT$28.941, near yesterday’s NT$28.928 that was the highest level since September 2011. One-month non-deliverable forwards contracts fell 0.1 percent to NT$28.910, data compiled by Bloomberg show.

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 Dec. 19.

The benchmark stock index fell the most this year as exchange data showed foreign investors were net sellers of $131 million of shares today, adding to $60 million yesterday.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in exchange rates used to price options, dropped to 3.20 percent from 3.38 percent, according to data compiled by Bloomberg.

The yield on the 1.125 percent bonds due September 2022 declined one basis point, or 0.01 percentage point, to 1.164 percent, according to Gretai Securities Market. The overnight interbank lending rate was steady at 0.388 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

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