Taiwan Dollar Has Worst Week Since June as Fed Tapers Stimulus

Taiwan’s dollar completed its biggest weekly loss since June after the Federal Reserve said it will reduce stimulus that’s spurred demand for emerging-market assets. Government bonds gained.

The Fed will cut its monthly bond purchases to $75 billion from $85 billion in January, Chairman Ben S. Bernanke said this week. The program is likely to be lowered in $10 billion increments over the next seven central bank meetings before ending in December 2014, the median forecast of economists in a Bloomberg survey shows. Taiwan’s record foreign reserves will serve as a buffer against the tapering, according to Jih Sun Securities Co.

“As the Fed tapers its stimulus gradually, funds will move from emerging to developed markets,” said Michelle Tsai, a Taipei-based economist at Jih Sun Securities. “No Asian economy will be able to avoid this, but places with higher foreign reserves like Taiwan will be relatively resilient.”

Taiwan’s dollar depreciated 1 percent this week to NT$29.980 against the greenback, prices from Taipei Forex Inc. show. That’s the biggest weekly decline since the five days ended June 21.

Overseas funds bought $35 million more Taiwanese stocks than they sold this week, taking net purchases this month to $882 million, exchange data show. The central bank will focus on preventing large fund outflows at next week’s quarterly board meeting, the Economic Daily News reported, citing unidentified government officials.

Foreign Reserves

Taiwan’s foreign-exchange reserves climbed to $415 billion this year, from $403 billion in December 2012, official data show. That compares with $266 billion in January 2007 before the onset of the global financial crisis.

The island’s currency lost 0.1 percent today, after slipping 0.2 percent in the last 11 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 the currency fell 1.2 percent this week and 0.2 percent today to NT$29.921 per dollar, data compiled by Bloomberg show. That’s the biggest five-day drop since January.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, jumped 49 basis points this week and 33 basis points today to 3.67 percent, the highest since Oct. 15.

Bond Sales

Taiwan’s government will announce next year’s bond issuance plan on Dec. 23. The yield on the 1.25 percent sovereign notes due October 2018 dropped three basis points, or 0.03 percentage point, this week to 1.056 percent, according to Gretai Securities Market. The rate increased one basis point today.

The central bank will announce its policy rate decision on Dec. 26, with all 25 economists surveyed by Bloomberg predicting borrowing costs will be kept at 1.875 percent. The overnight interbank lending rate was little changed this week and today at 0.386 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

Taiwan’s export orders climbed 0.8 percent last month, official data showed today, compared with the median forecast of economists in a Bloomberg survey for a 1.8 percent decline.

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