Taiwan Dollar Completes Best Month in a Year on Capital Inflows

Taiwan’s dollar recorded its best month in a year after foreign investors boosted holdings of the island’s stocks. Government bonds rose.

The local dollar strengthened 1.1 percent this month and

1.5 percent this quarter to NT$29.67 against the greenback, prices from Taipei Forex Inc. show. That’s the biggest monthly gain since September 2012. The currency fell 0.1 percent today.

Global funds pumped $4.1 billion into Taiwanese equities this month, taking the year’s net inflows to $5.5 billion, exchange data show. The local dollar touched a four-month high last week after the Federal Reserve unexpectedly refrained from tapering stimulus that’s buoyed emerging-market assets. Exports, which account for about three-quarters of the island’s economy, climbed for a fourth month in August as data from China and the U.S. signaled global demand is improving.

“Starting from May, although global funds reduced positions in emerging markets, funds were also reallocated from weaker to stronger places like South Korea and Taiwan,” said Andrew Tsai, an economist at KGI Securities in Taipei. “As we gradually enter an up cycle, investors also tend to turn to places that are export-oriented or highly sensitive to cyclical growth, which are also these two places.”

The currency pared a 0.3 percent gain during the last nine minutes of trading today amid suspected central bank intervention. The 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.

Bonds, Forwards

Asian stocks fell today as the U.S. government headed for a shutdown amid a budget stalemate and the next fiscal dispute over raising the debt ceiling loomed.

“With uncertainties such as the U.S. debt ceiling and a possible government shutdown, funds will be more conservative now,” Tsai said. “We’ll see a slowdown in the Taiwan dollar’s appreciation. In the short term, it may only rise to NT$29.35.”

One-month non-deliverable forwards on the Taiwan dollar rose 1.2 percent this month to NT$29.555 against the greenback, according to data compiled by Bloomberg. The contracts declined

0.1 percent today.

The yield on the 1.75 percent government notes due September 2023 dropped four basis points this month to 1.688 percent, according to Gretai Securities Market. The rate fell four basis points today after surging 10 basis points on Sept. 27 on speculation the central bank will raise borrowing costs.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, added 19 basis points, or 0.19 percentage point, this month and six basis points today to 3.92 percent.

The overnight interbank lending rate was steady this month and today at 0.385 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.