The New Taiwan dollar strengthened further to approach the crucial NT$33 level against its US counterpart yesterday as overseas fund managers expanded purchases of local shares, traders said.
Panic US dollar sell-offs from Taiwanese exporters to hedge against foreign exchange losses further pushed the already weakening US currency down, a trader surnamed Yang at Shanghai Commercial and Saving Bank said.
"The inflow of foreign capital set off a scramble among local exporters to reduce their greenback position as the US dollar is nearing a level that could hurt exporters," Yang said.
The local currency advanced NT$0.21 to close at NT$33.075, a six-month high, versus the greenback on the Taipei foreign exchange market yesterday after retreating from a NT$0.26 gain in the morning session. On Thursday, the NT dollar closed at NT$33.285 against its US counterpart. Turnover expanded to around US$1.29 billion, the biggest volume since the beginning of the year.
Yang said overseas capital inflow was the major force driving the local currency.
Overseas fund managers bought a net NT$13.20 billion worth of local stocks yesterday in an apparent reaction to Morgan Stanley Capital International Inc's (MSCI) decision to raise its weighting of Taiwan's stock market from the beginning of this month. In the past five trading sessions, foreign fund managers bought a total of NT$46.79 billion worth of local shares, a spike from NT$8.87 billion last week.
As the effects of MSCI's rating are expected to extend into next year, attracting more funds from overseas into local equities markets, most currency analysts expect the NT dollar to rise further, past the important threshold of NT$33 against the US dollar by the end of the year.
The recent firmer trend of the Taiwanese currency has already caused jitters among exporters.
"If the NT dollar breached the NT$33 level, local exporters, especially notebook computer makers, will start to feel the pinch," said Sean Hsiao (
Hsiao pointed to Compal Electronics Inc (
"The exchange loss has eroded its profits in the first quarter," he said.
Compal, which makes laptop computers for Hewlett-Packard Co, sustained a huge NT$240 million foreign exchange loss in the first quarter, compared with NT$1.69 billion in earnings during the quarter ended March.
To safeguard the nation's exports, Rock Hsu (
"Steep appreciation of the NT dollar could bring an adverse impact on Taiwan's manufacturers," Hsu warned yesterday.
Compal Electronics's gross margin contracted to 5.7 percent in the third quarter, from 7.1 percent in the first three months.