Taiwan Dollar Posts Worst Quarterly Drop in a Year as Yuan Falls

Taiwan’s dollar recorded the biggest quarterly decline in a year on speculation the central bank stepped up intervention to support exporters as China’s yuan dropped the most in two decades.

Taiwan’s overseas shipments, which account for about 60 percent of the economy, fell a more-than-estimated 5.3 percent in January before rising 7.9 percent in February. The central bank has been resisting gains in the currency as the domestic economic outlook is weak, according to Deutsche Bank AG. The won in South Korea, a nation with which Taiwan’s exporters compete, dropped 0.9 percent during the quarter.

“There wasn’t much pressure from fund flows or monetary policy, but the central bank may have been concerned the won’s drop will harm Taiwan’s exports,” said Andrew Tsai, a Taipei-based economist at KGI Securities. “The marked declines in the yuan also affected Taiwan’s dollar.”

The currency depreciated 1.8 percent in the first three months of the year to NT$30.510 against the greenback, prices from Taipei Forex Inc. show. It gained 0.1 percent today, paring the month’s drop to 0.5 percent.

The currency may trade between NT$30.3 and NT$30.6 next quarter, Tsai said. The monetary authority has sold the island’s dollar in the run-up to the close on most days since March 2012, according to traders.

China’s yuan fell 2.6 percent from Dec. 31, the biggest quarterly loss in China Foreign Exchange Trade System prices dating back to 2007, and the most since the January-March period of 1994, after the government unified the official and market exchange rates at the start of that year.

Global investors bought $2.6 billion more Taiwanese stocks than they sold this quarter through March 28, exchange data show. The Taiwan Taiex Index of shares climbed 2.8 percent, a fifth quarterly advance.

Bonds Rise

One-month non-deliverable forwards fell 2 percent this quarter and were little changed today at NT$30.435 against the greenback, data compiled by Bloomberg show. One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, was little changed this quarter and fell three basis points, or 0.03 percentage point, today to 3.59 percent.

The yield on benchmark 10-year sovereign bonds dropped nine basis points from Dec. 31, the biggest three-month decrease since September 2011, GreTai Securities Market prices show. The rate increased one basis point today to 1.593 percent.

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

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