Taiwan Dollar Forwards Fall This Week on Increased Intervention

Taiwan dollar forwards posted the worst weekly drop in more than a month on speculation the central bank will seek to curb a rally in the spot market that threatens to hurt exports. Government bonds fell.

Shipments, which account for about three-quarters of the economy, slumped 7 percent in September from a year earlier, official data showed this week, as the International Monetary Fund cut its forecast for the island’s 2013 growth to 2.2 percent from 3 percent. The spot rate gained 1.2 percent in the past month as global funds injected $3.1 billion into domestic stocks. Policy makers will step in to maintain an orderly market should irregular factors such as short-term capital flows cause excess volatility, the central bank said in a Sept. 26 statement.

“Intervention has intensified,” said Andrew Tsai, an economist at KGI Securities in Taipei. “September exports fell, so the market, corporations and the central bank are all concerned. The trend is still one of gradual appreciation, but just at a slower pace.”

One-month non-deliverable forwards fell 0.1 percent from a week ago to NT$29.307 per U.S. dollar as of 4:31 p.m. in Taipei, according to data compiled by Bloomberg. That’s the biggest decline since the five days ended Aug. 30. The contracts rose 0.1 percent today.

Overseas investors bought $390 million more Taiwanese equities than they sold this week, taking this year’s net purchases to $6.8 billion, exchange data show. Local markets were shut yesterday for a holiday.

Spot Market

In the spot market, the local dollar was little changed this week at NT$29.490 against the greenback, prices from Taipei Forex Inc. show.

The currency closed 0.2 percent higher than Oct. 9 today, after dropping 0.3 percent in the last 15 minutes of trading amid suspected intervention by the central bank. 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.

The yield on the 1.75 percent government notes due September 2023 increased two basis points this week and three basis points today to 1.682 percent, according to Gretai Securities Market.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 18 basis points, or 0.18 percentage point, this week and nine basis points today to 3.79 percent.

The overnight interbank lending rate was steady today and this week at 0.386 percent, a weighted average compiled by the Taiwan Interbank Money Center showed.

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