Taiwan Dollar Forwards Decline This Week on Threat to Exports

Taiwan dollar forwards posted a weekly drop as investors favored the greenback amid signs of a stronger U.S. economic recovery, and as declines in the South Korean and Japanese currencies threaten exports.

Reports this week showed U.S. retail sales exceeded estimates in December and jobless claims dropped to the lowest in more than a month, even as payrolls increased by the least since 2011. The Bloomberg Dollar Index, which tracks the greenback against 10 major peers, headed for its biggest weekly gain in more than two months, while the yen has lost 0.1 percent since Jan. 10. The won, which rose this week, has slid 0.9 percent this year.

“Stronger U.S. economic data has helped the greenback recover from the weak non-farm payroll data,” said Cindy Yu, a Taipei-based economist at Fubon Commercial Bank. “As the yen depreciates, there’s concern the Bank of Korea may prevent the won from strengthening. Taiwan’s dollar will naturally be affected.”

The Taiwan dollar’s one-month non-deliverable forwards fell 0.5 percent this week and 0.1 percent today to NT$30.095 against the greenback as of 4:27 p.m. in Taipei, according to data compiled by Bloomberg. The spot rate was little changed from Jan. 10 at NT$30.221 after declining for five consecutive weeks, prices from Taipei Forex Inc. show.

The Taiwan dollar has dropped by an average 0.4 percent in the last half hour of trading this week amid suspected central bank intervention. The monetary authority has sold the currency in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.

Export Competition

Taiwan’s exporters, from makers of semiconductors to electronics, compete with South Korean and Japanese counterparts in overseas markets. South Korea will act if needed to stabilize its currency market to help business cope with the weak yen, the trade ministry said in an e-mailed statement this week, fueling speculation authorities may step in to curb gains in the won.

The Federal Reserve this month starts cutting asset purchases that have buoyed emerging-market assets. Global funds bought $702 million more Taiwanese stocks than they sold this week, exchange data show.

Bond and equity fund flows out of the island amounted to $145 million in the week ended Jan. 15, $99 million more than the prior period, Australia & New Zealand Banking Group Ltd. strategists led by Richard Yetsenga in Sydney wrote in a research note, citing EPFR data.

Bonds, Volatility

The yield on Taiwan’s 1.125 percent government notes due January 2019 was little changed this week at 1.132 percent, according to prices from Gretai Securities Market. The rate fell one basis point, or 0.01 percentage point, today.

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in the exchange rate used to price options, rose four basis points this week and dropped one basis point today to 3.64 percent.

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

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