The New Taiwan dollar yesterday continued its rise against its US counterpart, closing NT$0.144 higher at NT$32.095 on the Taipei foreign exchange market, its highest level since Nov. 2000.
The local currency rose as high as NT$32.043 against the greenback around noon yesterday amid speculation that China had cut back on its holdings of US Treasury bonds. Turnover was US$935 million, down from the previous day's US$1.369 billion.
The NT dollar rose 1.4 percent against the US dollar this week and has strengthened 5.4 percent since the beginning of last month.
The local currency's momentum is expected to continue at a steady pace in the foreseeable future, an economist at the Taiwan Institute of Economic Research (TIER,
"The central bank appeared to take a more relaxed attitude about the strengthening NT dollar this time in a bid to dilute the nation's inflationary pressure," TIER's vice president David Hong (
While how much more the NT dollar will strengthen is still unclear, Hong said the recent appreciation of the NT dollar remained acceptable, as the rise was relatively small compared with other Asian currencies.
"Therefore, we expect the central bank will allow the NT dollar to keep rising slowly in the future to avoid jeopardizing the nation's export competitiveness," Hong said.
Still, the nation faces strong appreciation pressure as a result of its vast foreign reserves, increasing trade surplus and recent foreign capital inflows, he added.
Accordingly, the institute yesterday adjusted upward its exchange rate forecast for the NT dollar to NT$32.2 versus the greenback on average next year, up from the previous estimate of NT$32.67 made earlier this month.
There was speculation yesterday that China's move to cut a portion of its US Treasury bonds was to pave the way for revaluating the yuan. But Hong said a strengthening yuan could hurt Taiwanese companies based in China and aggravate appreciation pressure on the NT dollar.
It is hard to predict the scale and pace of the yuan's revaluation at this stage, considering China's strong governmental control on foreign exchange policy, he added.
While the rising NT dollar is undercutting Taiwanese exporters' profit margins, companies said they are more conservative about the next six months as a result of higher oil prices and other reasons, according to a poll released yesterday by the institute.
About 12.21 percent of the companies polled said they are bullish about economic prospects, which is a significant plunge compared with 37.4 percent when the institute conducted the same survey last month.
The institute's business climate index dropped 4.87 percent to 104.50 last month, from 109.85 in the previous month, marking the largest decline since the outbreak of SARS in March last year, TIER said.