The New Taiwan dollar rose to its highest in four and a half years on speculation that overseas buyers will increase demand for the currency as they raise their investments in Taiwanese stocks.
The NT dollar gained NT$0.133, or 0.4 percent, to close at NT$31.199 against its US counterpart on the Taipei foreign exchange market.
That figure was the highest close since Sept. 15, 2000.
As of yesterday, fund managers abroad bought a net NT$92 billion (US$2.9 billion) of Taiwan's shares this month, compared with net sales last month, according to stock exchange figures.
The continued appreciation in local currency has caused domestic textile makers to publicly petition the central bank to intervene in the foreign exchange market.
In a statement released on Tuesday night, textile makers complained that a stronger NT dollar is eroding their competitiveness and earnings as they compete against their Chinese rivals in the US and Europe.
The NT dollar also strengthened yesterday after the central bank said in a statement that it hasn't been selling the US currency.
"The [central] bank has not been selling US dollars. Foreign media reports are inconsistent with facts," the bank said.
The remark came as a Chinese-language business daily reported yesterday that "according to foreign media reports, the US dollar declined sharply as Taiwan's central bank and the Bank of Korea plan to sell the US currency."
Earlier in the day, the Bank of Korea said the market had misunderstood reports on the issue. It insisted that it had no plan to sell some of its dollar forex reserves.
At the same time, the bank said it did plan to diversify its forex reserves in the interest of securing a better investment return.
"That they haven't been selling the dollar doesn't mean they won't sell," Tommy Ong, vice president of the treasury and markets at DBS Bank (Hong Kong) Ltd, a unit of Southeast Asia's biggest lender by assets.
"They want to avoid a freefall of the US dollar because obviously they have a pretty large portion of the dollar in their reserves," he said.
The NT dollar may rise to NT$30.25 against the greenback in about a month, Ong said.
Lehman Brothers said yesterday in a report, Taiwan's Temporary Pause, that "Faced with renewed upward pressure on the NT dollar, we judge that Taiwan's central bank would once again [at least initially] intervene heavily in the forex market."
The NT dollar pared gains of as much as 0.6 percent on speculation the central bank sold its some of its currency holdings, said Joseph Lee, a currency trader at Cathay United Bank (
``There was speculation that the authority sold the Taiwan dollar just to slow down its gains,'' he said.
George Chou (
The NT dollar's gains may also encourage some exporters to convert overseas earnings on concern the currency's advance may accelerate, said Gary Huang, a currency trader at Union Bank of Taiwan (
A strengthening currency reduces the amount of foreign-exchange proceeds such companies can get out of their profits.
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