Taiwan Dollar Forwards Touch Five-Week Low on Fed Speculation

Taiwan dollar forwards touched a five-week low after data showed the U.S. economy expanded more than forecast in the third quarter, stoking speculation the Federal Reserve will taper its stimulus sooner than predicted.

The Standard & Poor’s 500 Index declined the most since August yesterday after the world’s largest economy reported a 2.8 percent annualized gain in gross domestic product, beating the median estimate of 2 percent in a Bloomberg News survey of economists. Investors will examine payrolls and unemployment figures due today for clues as to when the Fed will start cutting its $85 billion of monthly bond purchases.

One-month non-deliverable forwards on the Taiwan dollar touched NT$29.451 today, the weakest level since Oct. 2. The contracts were little changed at NT$29.410 per dollar as of 4:23 p.m. in Taipei, according to data compiled by Bloomberg. The forwards declined 0.1 percent this week.

“The reaction today is in part due to the GDP, but also the fall in U.S. equities,” a measure of risk sentiment correlated with Asian currencies, said Trang Thuy Le, a Singapore-based currency strategist at Credit Suisse AG. “The timing of tapering would hinge more on the labor data we have today than the GDP yesterday.”

Currency, Bonds

Global funds bought $8.5 million more Taiwanese equities than they sold this week, the least since August, taking this year’s net purchases to $8.4 billion, exchange data show.

In the spot market, Taiwan’s dollar weakened 0.1 percent today and this week to NT$29.505 against the greenback, prices from Taipei Forex Inc. show. The currency lost 0.3 percent in the final half hour 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.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, increased seven basis points today to 3.2 percent. The measure was unchanged for the week.

The yield on the government’s 1.25 percent bonds due October 2018 dropped one basis point, or 0.01 percentage point, today and this week to 1.1 percent, according to Gretai Securities Market.

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

The Federal Open Market Committee refrained from trimming its stimulus last month, noting the U.S. economy is showing signs of “underlying strength.” Economists surveyed by Bloomberg Oct. 17-18 predicted the Fed would begin paring stimulus in March compared with previous forecasts for as early as December.

U.S. employers added 120,000 workers to payrolls in October, down from a 148,000 gain in the prior month, according to the median forecast of economists surveyed by Bloomberg. The jobless rate is projected to climb to 7.3 percent from 7.2 percent.

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