Taiwan Dollar Climbs to 3-Month High as Stock Inflows Quicken

Taiwan’s dollar advanced to the strongest level in three months after global funds accelerated purchases of local equities and as the island’s benchmark share index touched a 21-month high.

Overseas investors added an average $196 million a day to holdings of Taiwanese stocks this month, compared with $54 million in April, exchange data show. The Taiex index rose to its highest since August 2011, before closing up 1.3 percent at 8,267.09. The local dollar has limited room to climb as exchange rate gains may threaten exports, Cathay Financial Holding Co. analysts wrote in a research note today. Shipments dropped 1.9 percent in April, after a 3.3 percent increase in March, official data showed yesterday.

“There continues to be a lot of money coming in to buy stocks,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan in Taipei. “The stock rally will probably be tested at 8,500, and that’s when we’ll see Taiwan dollar gains slowing. Taiwan’s exporters can’t stand a strong currency.”

The Taiwan dollar advanced 0.3 percent to NT$29.5 against its U.S. counterpart, Taipei Forex Inc. prices show. The currency earlier touched NT$29.38, the strongest level since Jan. 28.

The local dollar was trading 0.7 percent stronger two minutes before the 4 p.m. close. The central bank has sold the currency in the run-up to the close on most days in the past year, according to traders who asked not to be identified.

One-month non-deliverable forwards advanced 0.5 percent to NT$29.360 against the greenback, according to data compiled by Bloomberg. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose one basis point to 3.48 percent.

Government bonds fell. The yield on the 0.875 percent bonds due January 2018 rose one basis point, or 0.01 percentage point, to 0.892 percent, according to Gretai Securities Market prices.

The overnight interbank lending rate was steady at 0.386 percent, according to a weighted average compiled by the Taiwan Interbank Money Center.