Taiwan Dollar Has First Annual Loss Since 2008 on Fed Tapering

Taiwan’s dollar posted the first annual decline in five years, dragged down by a cooling economy and as the Federal Reserve reduces the stimulus that has driven funds to emerging markets.

Taiwan last month trimmed its 2013 growth forecast to 1.74 percent from 2.31 percent as exports and industrial production slowed. U.S. 10-year Treasury yields surged 122 basis points in 2013 with a quickening economic recovery allowing the Fed to decide to begin tapering its bond purchases in January.

The Taiwan dollar fell 2.6 percent in 2013, the biggest decline since 2005, Taipei Forex Inc. prices show. It rose 0.3 percent today to end the year at NT$29.950 against the greenback in Taipei on speculation exporters are converting overseas earnings as the year ends. One-month non-deliverable forwards rose 0.4 percent to NT$29.805, paring the annual loss to 3 percent.

“Fed tapering means Asian currencies are unlikely to perform well on expectations of a stronger dollar,” said Tarsicio Tong, a Taipei-based currency trader at Union Bank of Taiwan. “It’s mainly exporters selling the U.S. dollar today and some companies are repatriating overseas profits back to Taiwan. I expect the Taiwan dollar will retreat to NT$30 or even weaker when the end-of-year demand is gone.”

Growth, Bonds

Taiwan’s central bank held its benchmark interest rate for a 10th straight meeting last week to support growth as inflation eased. The monetary authority has kept borrowing costs unchanged since June 2011, the longest period of inaction.

The yield on Taiwan’s benchmark 10-year government bonds jumped 51 basis points, or 0.51 percentage point, this year to 1.68 percent. The rate on the 1 percent notes due January 2019 was little changed today at 1.118 percent in when-issued trading, according to Gretai Securities Market.

“Taiwan’s bonds followed Treasuries this year, but the jump in yields can’t be equal as our monetary policy is looser,” said Sam Chang, a Taipei-based bond trader at Hua Nan Securities Co. Bond yields will rise gradually next year as the Fed reduces its asset purchases and more sharply as it prepares to raise borrowing costs, Chang said.

The overnight interbank lending rate slipped three basis points this year to 0.388 percent, a weighted average compiled by the Taiwan Interbank Money Center showed. It was little changed today. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, rose 44 basis points this year to 3.58 percent. It fell 12 basis points today.

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