Central bank intervention is making Taiwan’s dollar one of the most stable currencies in Asia, giving the island’s exporters an edge over regional rivals as U.S. monetary easing weighs on the greenback.
Three-month historical volatility for the Taiwan dollar fell 0.04 percentage point this quarter to 2.82 percent yesterday, according to data compiled by Bloomberg. Among 11 Asian currencies tracked by Bloomberg, only China’s yuan and Hong Kong’s dollar fluctuated less. The island’s dollar appreciated 1.8 percent versus its U.S. counterpart during the period, less than the 4.5 percent gain in South Korea’s won.
Exporters from Taiwan Semiconductor Manufacturing Co. (2330), the island’s biggest company, to privately-held auto parts maker Sungreat Inc. have called for a more stable or weaker currency as economic slowdowns in China, the U.S. and Europe threaten earnings. Overseas sales dropped in all but one of the last eight months and the Central Bank of the Republic of China (Taiwan) has bought U.S. dollars to stem gains in the local currency on most days in the past four months, according to traders who asked not to be identified.
“When the global economy is doing so badly, the central bank needs to make sure the Taiwan dollar is stable to keep us competitive,” said Chang Pen-Tsao, chairman of the Taipei-based General Chamber of Commerce of the Republic of China. “The governments of our biggest competitors are doing the same.”
Most Volatile Currencies
India’s rupee, Malaysia’s ringgit and Japan’s yen were Asia’s most volatile currencies in the past three months, according to data compiled by Bloomberg. The won was fourth with a reading of 6.3 percent, more than double the Taiwan dollar’s. Volatility for the yuan was 1.5 percent and that for the Hong Kong dollar 0.2 percent. China’s central bank keeps the nation’s currency within 1 percent of a daily fixing, while Hong Kong has been pegged to the greenback since 1983.
Taiwan’s central bank will step in to “maintain order” in the exchange rate, Governor Perng Fai-nan said in March in response to questions from lawmakers. Stable currencies help manufacturers set prices for customers that reflect costs of production, allowing them to maximize profits and margins.
Limiting appreciation is becoming harder after the Federal Reserve announced on Sept. 13 a third round of asset purchases that boosts the supply of dollars and spurs demand for emerging- market assets. Overseas investors bought $946 million more of the island’s equities than they sold last week, the second- biggest net purchases since March, exchange data shows.
The local dollar gained 1.9 percent this month through yesterday as all of Asia’s 11 most-used currencies strengthened versus the greenback. Taiwan’s currency finished yesterday 0.2 percent higher on the day at NT$29.399 versus its U.S. counterpart, having been up as much as 0.9 percent earlier in the day. The central bank intervened to curb appreciation in the run-up to the close, according to traders who asked not to be identified.
“If the Taiwan dollar still strengthens a lot from the current level, that’s when exporters will really feel the pain,” said Aidan Wang, senior economist at Yuanta Investment Consulting. “The rally brought by QE3 is Asia-wide, and maybe that makes the central bank a bit less nervous.”
TSMC, the world’s largest custom maker of chips, based its revenue guidance for this quarter on an exchange rate of NT$29.76 per dollar, Chief Financial Officer Lora Ho said in a July 19 conference call. That’s stronger than the average close of NT$29.95 since June 30.
“It’s about keeping the currency more stable and aligned with other currencies,” said Philip Wee, a senior currency economist in Singapore at DBS Group Holdings Ltd. “I’m pretty sure the central bank has taken in feedback from exporters as well.”
Exports Estimate Cut
Taiwan relies on demand from overseas for at least two- thirds of its growth, according to official data. The island’s biggest export competitor in the region is South Korea, where companies including Samsung Electronics Co. are vying for smart- phone market share against Taoyuan, Taiwan-based HTC Corp. The island’s manufacturers also compete for global market share in memory chips, display panels, and machinery products.
South Korea’s exports fell 2.1 percent from a year earlier in the first eight months of 2012, while Taiwan’s shipments dropped 5.6 percent, official data show. The island risks missing its export goal this year, even after the statistics bureau cut the estimate to a 1.72 percent contraction from 0.07 percent growth.
“We understand everyone’s suffering, not just Taiwan,” said Janus Sun, Chairman of Sungreat, which exports auto parts including head lamps, racing car seats and aluminum wheels. “But the least the government officials can do is to make sure the Taiwan dollar doesn’t gain more than the Korean won.”
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