NT dollar rises to 13-month high

The New Taiwan dollar rose past NT$34.0 to the US dollar yesterday to close at its strongest since August 14 last year.

The currency gained NT$0.253, or 0.7 percent, to close at NT$ 33.805 on the Taipei foreign exchange market.

In a market awash in rumors of central bank intervention to purchase US dollars, turnover yesterday totalled US$1.4 billion, the highest since June 24 last year.

"The appreciation of the NT dollar appears to be a one-time shock in correlation with the strengthening of the Japanese yen," said an economist at one of the biggest foreign banks in Taiwan on the condition of anonymity.

The yen and the Korean won yesterday rose to 112.31 and 1,151.35, respectively, against the greenback, following an agreement reached by finance ministers from the G7 industrial nations on Saturday, which urged flexibility for Asian currency rates.

The economist said he agreed with the consensus that Asian currencies are slightly undervalued, but he believed that the central bank won't allow the NT dollar to strengthen past yesterday's high of NT$33.80, nor would the bank of Japan allow the yen to rise much further.

"Unless the turnover on the forex market continues to surge substantially, the NT dollar may be reasonably stable around NT$33.80," he said.

But other pundits were more optimistic, saying the NT dollar's further appreciation was likely.

A foreign banker, who also requested anonymity, predicted the NT dollar may further climb to between NT$33.80 and NT$33.50 within three months while the Japanese yen may level out at between ?110 and ?112 against the greenback in the same period.

Economic fundamentals and trade deficits in some of the region's countries may support a stronger currency, but their central banks will certainly do everything to avoid irrational fluctuations, said Chou Ji (周濟), director of the Chung-hua Institution for Economic Research's (CIER, 中經院) Center for Economic Forecasting.

"Overall, the momentum for Asian currencies including the NT dollar to appreciate is growing, but with intervention from the central banks, it'll be a moderate move," Chou said.

As expectation of a stronger NT dollar grows, People First Party Legislator Christina Liu (劉憶如) said Sunday in a local newspaper that she was worried that foreign capital may flow into Taiwan to speculate on the local currency's potential strengthening.

Chou and the economist agreed that this was possible.

A significant part of the foreign capital that has ben moved into Taiwan in recent months for securities investment has yet to be invested suggesting that the holders prefer to leave the capital as liquid NT dollars to take advantage of any upward movement of the currency.

The foreign banker, however, disagreed, saying that the profit margin from possible NT dollar appreciation was too small to attract foreign speculators.