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Taiwan Dollar Drops Most Since May After Fed Announces Tapering

Dec. 19 (Bloomberg) -- Taiwan’s dollar fell the most in seven months after the Federal Reserve announced plans to taper stimulus that has buoyed emerging-market assets. Government bonds rose.

The Fed is trimming its monthly bond buying to $75 billion from $85 billion in the central bank’s first step toward unwinding its unprecedented stimulus, Chairman Ben S. Bernanke said yesterday, citing the improved labor market outlook. The greenback advanced against most major peers after the announcement and touched a five-year high versus the yen.

“The U.S. dollar strengthened against major currencies after the Fed meeting, so there’s bound to be some pressure on emerging-market currencies,” said Andrew Tsai, a Taipei-based economist at KGI Securities. “Near year-end, Taiwan’s central bank also prefers to let the currency depreciate to give companies repatriating overseas profits a boost.”

Taiwan’s dollar fell 0.7 percent to NT$29.945 against the greenback, prices from Taipei Forex Inc. show. That’s the biggest slide since May 10 and the weakest level since Sept. 6.

The currency weakened 0.4 percent in the last 15 minutes of trading amid suspected central bank intervention. 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.

One-month non-deliverable forwards on Taiwan’s currency dropped 0.6 percent to NT$29.79 per dollar, data compiled by Bloomberg show. That’s the biggest decline since June 20 and the weakest level since Sept. 2.

Low Rates

The U.S. benchmark interest rate is likely to stay low “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below” its 2 percent goal, the Fed said yesterday. The U.S. jobless rate dropped to a five-year low of 7 percent last month.

The yield on Taiwan’s 1.75 percent sovereign bonds due September 2023 dropped one basis point, or 0.01 percentage point, to 1.64 percent, according to Gretai Securities Market.

The Fed’s cut in stimulus may prompt Taiwan’s central bank to raise the benchmark interest rate by 12.5 basis points to 2 percent in the second quarter, according to Marcella Chow, a Hong Kong-based economist at Bank of America Corp. The island is among the most defensive Asian markets and the currency is unlikely to weaken beyond NT$31 per dollar, Chow added.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, increased 13 basis points to 3.35 percent. The overnight interbank lending rate was little changed at 0.386 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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