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Taiwan Dollar Forwards Drop on Stock Outflows, U.S. Debt Concern

Taiwan dollar forwards declined for a third day after overseas investors pulled funds from the island’s stocks, reflecting concern brinkmanship by U.S. lawmakers will delay an increase in the nation’s debt ceiling.

Foreigners cut their holdings of local shares by $187 million in the last two days and the benchmark Taiex index had its biggest two-day slide since Dec. 21, exchange data show. The World Bank yesterday cut its 2013 global economic growth forecast to 2.4 percent from a June estimate of 3 percent. U.S. Treasury Secretary Timothy F. Geithner warned this week of severe economic hardship should Congress fail to raise the debt limit next month. Taiwan’s government bonds were steady.

“The U.S. debt negotiations could be a short-term drag on market sentiment,” said Jenny Yun-ling Huang, an economist in Taipei at Sinopac Financial Holdings. The local dollar’s advance is being restrained by intervention to protect local exporters, she said.

One-month non-deliverable forwards fell 0.2 percent to NT$28.965, according to data compiled by Bloomberg. The spot exchange rate weakened 0.2 percent to NT$29.099 based on Taipei Forex Inc. prices, after touching a 17-month high of NT$28.928 on Jan. 14.

The U.S. Treasury is using emergency measures to delay a default as the total value of the nation’s debt nears the existing ceiling. Exhausting the extraordinary steps without raising the limit would require the Treasury to fund the government with cash on hand, which wouldn’t be adequate “for any meaningful length of time,” Geithner said.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in exchange rates used to price options, dropped to a one-week low of 3 percent from 3.25 percent, according to data compiled by Bloomberg.

The yield on the 1.125 percent bonds due September 2022 was little changed at 1.162 percent, according to Gretai Securities Market. The overnight interbank lending rate was steady at 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

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