Taiwan Dollar Forwards Drop on Intervention Fear; Bonds Decline

Jan. 21 (Bloomberg) -- Taiwan dollar forwards declined to a two-week low on speculation the island’s monetary authority will restrain the pace of its appreciation to help protect exporters at a time when overseas demand is improving.

The three-month forward contracts halted a two-day advance as the benchmark Taiex index of stocks slid. A government report released after market hours today showed export orders climbed 8.5 percent in December from a year earlier, following an 11.1 percent gain in November. Government bonds fell.

“Too fast an appreciation in the Taiwan dollar will hurt exports, which are only beginning to recover,” said Jenny Huang, an economist in Taipei at Sinopac Financial Holdings. “It will be a slow and controlled” gain for the currency, she said.

Three-month non-deliverable forwards weakened 0.2 percent to NT$28.865, according to data compiled by Bloomberg, the most since Jan. 4. The spot exchange rate was little changed at NT$29.07 based on Taipei Forex Inc. prices, erasing a 0.43 percent gain in the final minute of trading.

The central bank has intervened in the market on most days in the past nine months to damp the currency’s strength, according to traders who asked not to be identified.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in exchange rates used to price options, dropped nine basis points or 0.09 percentage point to 2.8 percent, the lowest since September 2007, according to data compiled by Bloomberg.

The yield on the 0.625 percent bonds due February 2015 rose more than one basis point to 0.7 percent, according to Gretai Securities Market. The overnight interbank lending rate was little changed at 0.384 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

The finance ministry will auction NT$40 billion ($1.4 billion) of two-year notes on Feb. 5, it said in a statement today.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net