Bloomberg News

Taiwan Dollar Climbs to Seven-Week High on U.S. Budget Optimism

January 01, 2013

Taiwan’s dollar rose to a seven-week high after the U.S. Senate passed a budget bill that may avert $600 billion in automatic tax increases and spending cuts if approved by the House.

The MSCI Asia Pacific (MXAP) Index of regional shares rallied 0.6 percent, signaling demand for riskier assets rose. Oklahoma Representative Tom Cole said he expects the House to pass the Senate’s plan unchanged with a “substantial” bipartisan vote. South Korea’s exports unexpectedly dropped 5.5 percent in December from a year earlier, official data showed yesterday.

“Passing the bill will avoid the drastic impact a fiscal cliff would have on the global economy,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB. “The disappointing Korea data shows Asia’s economic outlook remains uncertain. The central bank will probably try to maintain the relative competitiveness of the Taiwan dollar.”

The Taiwan dollar gained 0.4 percent to NT$29.014 against its U.S. counterpart as of 9:46 a.m. local time, according to data from Taipei Forex Inc. It touched NT$29.005 earlier, the strongest level since Nov. 13.

The currency strengthened 4 percent in 2012 as overseas investors boosted their holdings of the island’s stocks by $4.9 billion, according to exchange data. The Taiwan dollar will drop to NT$29.2 by the end of March, Cheung predicts.

The monetary authority has bought the greenback to counter gains in the island’s currency on most days in the past nine months, according to traders who asked not to be identified. The central bank’s mandate is to keep relative exchange-rate stability and to intervene in the event of abnormal moves, Governor Perng Fai-Nan said on Dec. 19.

Volatility Eases

One-month implied volatility in the Taiwan dollar, a gauge of expected moves in exchange rates used to price options, fell 11 basis points to 3.15 percent.

The yield on the 1.125 percent bonds due September 2022 fell one basis point, or 0.01 percentage point, to 1.158 percent, according to Gretai Securities Market.

The overnight interbank lending was little changed at 0.413 percent, a weighted average compiled by the Taiwan Interbank Money Center shows.

To contact the reporter on this story: Andrea Wong in Taipei at awong268@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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