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Taiwan Dollar Forwards Climb Most in 3 Weeks as Outflows Reverse

Dec. 30 (Bloomberg) -- Taiwan’s dollar forwards advanced the most in more than three weeks on speculation capital outflows are reversing and that the central bank will tolerate greater appreciation of the currency.

Global funds bought $277 million more local stocks than they sold last week, exchange data show. Overseas investors have injected $1.2 billion into domestic equities this month, even as the Federal Reserve announced plans to cut its stimulus. Taiwan’s central bank has intervened more actively recently to give exporters a year-end boost, according to Forest Chen, a Taipei-based economist at Ta Chong Bank Ltd.

The Taiwan dollar’s one-month non-deliverable forwards gained 0.1 percent to NT$29.912 per greenback as of 4:11 p.m. in Taipei, according to data compiled by Bloomberg. That’s the biggest rise since Dec. 6.

“The trend is for capital outflows to reverse, which supports the Taiwan dollar’s appreciation,” said Chen. “The central bank is probably also satisfied with an exchange rate of around NT$30.” Fund equity inflows will probably continue until Chinese New Year, he added.

In the spot market, Taiwan’s dollar was little changed at NT$30.030 per U.S. dollar, prices from Taipei Forex Inc. show. It earlier touched NT$29.898, the strongest level since Dec. 20.

The currency weakened 0.4 percent in the last 33 minutes of trade 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.

Volatility, Bonds

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, fell two basis points, or 0.02 percentage point, today to 3.69 percent.

The yield on the 1 percent government bonds due January 2019 dropped one basis point to 1.117 percent, with 19 transactions reported in when-issued trading, according to Gretai Securities Market. The securities will be auctioned on Jan. 15.

The overnight interbank lending rate was little changed today 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: Amit Prakash at aprakash1@bloomberg.net

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