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Taiwan Dollar Volatility at Nine-Month Low on Intervention Risk

Nov. 4 (Bloomberg) -- A gauge of expected fluctuations in Taiwan’s dollar touched a nine-month low on speculation the central bank will curb gains in the currency as the economy grows at the slowest pace in a year. Government bonds fell.

Taiwan’s gross domestic product rose 1.6 percent from a year earlier last quarter, official data showed last week, compared with the 2.6 percent median estimate in a Bloomberg survey of economists. Growth has slowed as markets for exports, which account for about three-quarters of the island’s economy, weakened across Asia and China changed its economic policies, central bank governor Perng Fai-nan said last week. The local dollar gained 0.7 percent in October as foreigners poured $2.8 billion into domestic stocks.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped six basis points, or 0.06 percentage point, today to 3.14 percent. The measure touched 3.02 percent, the lowest level since Jan. 28.

“The central bank may intervene more actively,” said Tarsicio Tong, a Taipei-based currency trader at Union Bank of Taiwan. “It looks like even 2 percent annual growth may be unreachable. These aren’t good conditions for appreciation.”

The government forecast in August the economy will expand 2.3 percent this year. The island’s foreign-exchange reserves climbed $3 billion in October to a record $415.6 billion, data showed today.

Intervention Risk

Taiwan’s dollar weakened 0.1 percent to NT$29.506 against the greenback, prices from Taipei Forex Inc. show. The currency lost 0.3 percent in the final eight minutes of trading amid suspected central bank intervention. One-month non-deliverable forwards were little changed today at NT$29.38, data compiled by Bloomberg show.

The monetary authority has sold the local dollar in the run-up to the close on most days since March 2012, according to traders who asked not to be identified. The central bank has been intervening to keep the exchange rate from strengthening beyond NT$29.4, Taipei-based Economic Daily News reported Nov. 1, citing traders it didn’t identify.

Taiwan’s exports are priced more competitively than South Korea’s, the central bank said in a report released today. The monetary authority may conduct random inspections of foreign investors’ local-currency holdings to prevent speculation, according to the report.

Bonds Fall

The U.S. will release employment data on Nov. 8. The Institute for Supply Management’s index, a manufacturing gauge, rose to a two-year high in October, fueling speculation the Federal Reserve will rein in monetary stimulus that has fueled demand for emerging-market assets.

The yield on Taiwan’s 1.25 percent bonds due October 2018 rose two basis points to 1.1365 percent, according to Gretai Securities Market. That’s the highest level since Oct. 16.

“As U.S. economic data has improved recently, investors have been more cautious about the Fed’s tapering prospects ahead of this week’s jobs report,” said Sandy Liao, a fixed-income trader at KGI Securities Co. in Taipei.

The overnight interbank lending rate was steady at 0.388 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net

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

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