Taiwan Dollar Forwards Touch Four-Week Low as GDP Disappoints

Taiwan dollar forwards touched a four-week low after the government reported the slowest economic growth in a year and as speculation mounted the U.S. will reduce its monthly asset purchases this year.

Bank of America Merrill Lynch and DBS Group Holdings Ltd. cut their 2013 forecasts for Taiwan’s expansion to 2 percent from 2.4 percent and 2.6 percent, respectively. Gross domestic product rose 1.6 percent from a year earlier in the third quarter, compared with the 2.6 percent median estimate in a Bloomberg News survey. The Federal Reserve said this week that the U.S. economy is showing signs of “underlying strength” in comments that Citigroup Inc. and Barclays Plc economists said raise the possibility of stimulus being tapered this year.

One-month non-deliverable forwards on the Taiwan dollar declined 0.2 percent this week and 0.1 percent today to NT$29.38 versus the greenback, according to data compiled by Bloomberg. The contracts touched NT$29.447, the weakest level since Oct. 3.

“The GDP data was disappointing,” said Andrew Tsai, a Taipei-based economist at KGI Securities. “Foreign investors are now anticipating the inflection point where U.S. economic data strengthens substantively, so fund flows into Taiwan won’t be as strong as they were in September.”

Global funds bought $470 million more Taiwanese equities than they sold this week, resulting in net purchases for October of $2.77 billion, exchange data show. That compares with $4.21 billion in September.

Intervention Speculation

In the spot market, Taiwan’s dollar weakened 0.1 percent this week and today to NT$29.47 against the greenback, prices from Taipei Forex Inc. show. The currency was trading at NT$29.41 before sliding 0.2 percent in the last 25 minutes of trading on 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. The central bank has been intervening to keep the exchange rate from strengthening beyond NT$29.4, Taipei-based Economic Daily News reported today, citing traders it didn’t identify.

The yield on the government’s 1.25 percent bonds due October 2018 climbed three basis points, or 0.03 percentage point, this week and today to 1.1163 percent, according to Gretai Securities Market. That’s the biggest daily increase since Sept. 27.

“Investors who were betting on bullish news signaling further delay in tapering after the Fed meeting sold their holdings,” said Eric Hsing, a Taipei-based bond trader at First Securities Inc. “Plus Treasury yields have also been rising.”

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, fell six basis points this week to 3.19 percent. The measure increased five basis points today.

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

Before it's here, it's on the Bloomberg Terminal.