TIER says NT dollar could rise

"The global economic situation seems good enough that we can maintain a more optimistic forecast, driven by exports ... Pressure for the New Taiwan dollar to appreciate is there."

Wu Rong-I, president of the Taiwan Institute of Economic Research

The New Taiwan dollar may rise as much as 3.5 percent against the US dollar by year-end as the nation's economic growth accelerates and demand for Taiwanese exports increases, according to the Taiwan Institute of Economic Research (台經院).

The nation's currency will probably strengthen to between NT$33 and NT$33.20 versus the greenback, Wu Rong-I (吳榮義), president of the institute, said in a telephone interview with Bloomberg from his Taipei office.

"The global economic situation seems good enough that we can maintain a more optimistic forecast, driven by exports," said Wu, "Pressure for the New Taiwan dollar to appreciate is there."

Exports, which account for about half of GDP, will help the economy expand as much as 6 percent this year, Wu said, exceeding the government's forecast of 5.4 percent.

"At least in the first six months of this year, Taiwan's economy is quite good," Wu said.

Compared to Wu's optimism, other economists were more low key about the NT dollar.

"We don't see obvious pressure for appreciation out there for the Taiwan dollar," said Chou Ji (周濟), director of Center for Economic Forecasting at the Chung-Hua Institution for Economic Research (中經院).

"We saw a trend for a narrower trade surplus coming in the second half of this year, bolstered by the augmentation of domestic demands over the same time," Chou said, adding that this could result in a downturn in the nation's trade balance as well as current account balance, which might weaken the currency.

The US' move to raise interest rates earlier this week indicated a decent economy and was helpful to maintain a strong US dollar, which, in turn, caused a reduced opportunity for NT dollar to appreciate, he said.

The local currency closed at NT$34.192 against the greenback yesterday, up from NT$34.14 on Thursday, on the Taipei foreign exchange market in line with a weakening Japanese yen.

The NT dollar has appreciated 0.6 percent in the past 12 months, making it the sixth-best performer among 15 Asia-Pacific currencies tracked by Bloomberg data. Last year, it climbed 2.2 percent, the most in four years.

Economists such as Chou think the market may not favor Asian currencies, citing the depressing Japanese currency impacted by unexpectedly low GDP growth for the second quarter released on Thursday and China's cooling-off policy.

Japan yesterday reported a lower-than-expected GDP growth of 1.7 percent in the second quarter, which dragged the currency toward around ?112 against the US dollar.

Yang Kung-yi (楊恭逸), a currency trader at Shanghai Commercial & Savings Bank (上海銀行) in Taipei, said he does not think there would be appreciation opportunities for Taiwan's currency in the last half of the year either, citing rocketing oil prices, which may hurt economic growth, and South Korea's move to cut interest rates on Thursday.

"If the government expects to boost economic growth through enhancement of exports, it would not allow the NT dollar to appreciate," Yang said.

The nation's foreign-currency reserves rose for the 37th month to a record US$230.4 billion last month, according to the central bank.

"Theoretically, NT dollar is determined by the market," said Kuan Chung-ming (管中閔), director of Institute of Economics at Academia Sinica. "Therefore, the key is the central bank's attitude."