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NT dollar declines on US outlook for rate increases

As local currencies fell throughout Asia yesterday, the New Taiwan dollar plunged to its lowest level in almost four months on speculation that the US Federal Reserve may raise interest rates next month.

"The NT dollar's decline reflects market concerns over the likelihood of an interest rate hike in the US, which would in turn draw foreign investors away from the local stock market," said Jerry Ho (何昶逸), a foreign-exchange dealer at the International Bank of Taipei (台北國際商銀).

The currency also weakened on concerns that the recount of votes cast in the presidential election may bring renewed public demonstrations questioning the results, currency dealers said.

The NT dollar fell NT$0.286, or 0.85 percent, to close at NT$33.60, its lowest close since Jan. 20, on the Taipei foreign exchange market. Turnover more than doubled to US$1.254 billion yesterday, compared to US$512 million last Friday.

The local currency at one point in the middle of the trading day had dropped NT$0.375, trading at NT$33.689, after overseas investors had sent the TAIEX plummeting by dumping a net NT$10.84 billion worth of Taiwanese shares.

The benchmark index yesterday fell 3.56 percent to close at 5825.05, the lowest thus far this year.

The US Labor Department on Friday released a better-than-expected employment report, showing an addition of 288,000 jobs last month and fueling market speculations that the Fed may increase interest rates sooner than expected.

JP Morgan Chase & Co and other Wall Street firms now expect the Fed to boost its target rate for overnight lending by 25 basis points, to 1.25 percent, at its June 30 meeting.

"As a result of a solid economic recovery, the US dollar is likely to gain strength against other major currencies," Ho said.

"Weak Asian currencies, on the other hand, will eventually benefit export-oriented economies in the region," he said.

In response to the currency's fluctuations, central bank Governor Perng Fai-nan (彭淮南) yesterday told the legislature that the NT dollar's decline was in line with the fluctuation of the Japanese yen, which yesterday broke through the ?113 mark against the US greenback. Compared to other major currencies, the NT dollar's exchange rate is stable, Perng said.

According to the bank's statistics, the NT dollar had lost about 0.85 percent of its value against the US dollar as of 4pm yesterday, compared to the Japanese yen's 2.25 percent drop, the South Korean won's 1.01 percent fall, the Singapore dollar's 1.35 percent loss and the euro's 1.64-percent drop.

Ho said that the market's expectations of a weaker US dollar may soon be revised. Previous pressure against Asian currencies' appreciation may also be alleviated, he said.
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