The New Taiwan dollar may strengthen further to around NT$30 against the US dollar by the end of the year, driven mostly by market speculation of a possible revaluation of the Chinese yuan, an American Express Bank Ltd economist said yesterday in Taipei.
The projection of a modest NT dollar appreciation follows the recent rally around the local currency.
The NT dollar has climbed 2.7 percent against the greenback in the past month to close at NT$30.878, a four-and-half-year high, on the Taipei foreign exchange market. Traders said the local currency has the potential to climb further, boosted by a constant inflow of hot money into local capital markets from overseas.
Overseas fund managers bought a net NT$8.41 billion in local stocks yesterday, according to Taiwan Exchange Corp figures.
"We think the NT dollar is still quite cheap ... The unit will continue to appreciate," said Kevin Grice, a senior economist with American Express.
The expected trend is primarily due to expectations that Beijing will allow the yuan to be re-pegged to the greenback and to the non-stop inflow of international capital into local markets, Grice said.
On the US' part, the Bush administration will let the US dollar weaken further to make a high budget deficit sustainable, he said.
But, "I think, for 2005 at least, the big move [of the local currency] is over," Grice said.
A possible scenario for NT dollar movement is that the local currency may strengthen moderately to NT$30 against the greenback -- a comfortable level for Taiwanese exporters -- by the end of the year, with Beijing only allowing the yuan a small 5 percent revaluation, he said.
Grice's projection, however, is conservative compared to most investment banks' predictions, including those of Goldman Sachs and Lehman Brothers.
Economists at the two investment banks projected that the NT dollar would rise aggressively to NT$28.5 and NT$26, respectively, against the US dollar within the next 12 months.
"The US dollar is set to decline for a fourth consecutive year, while Asian currencies are likely to take center stage," Jim McCormick, a global head of foreign exchange at Lehman Brothers, said last month in Taipei.
McCormick anticipated an Asian currency rally, including a gain of 21 percent for the NT dollar, and a 5 to 10 percent initial revaluation for the yuan.
The Japanese yen would rise to 90 to the US dollar and the Korean won to 900 to the greenback, he said.
Grice said the NT dollar would appreciate to NT$26 next year as the central bank tries to keep the rise of the currency on an orderly course.
"I'm confident of the central bank," he said.
A currency trader agreed with Grice's forecast, despite recent sharp appreciation.
"NT$30 is a reasonable level," he said.
A massive inflow of hedge funds into local markets gave a boost to the NT dollar recently, but that would only exert a short-term effect, he said, adding that speculators would withdraw their capital as soon as they reaped their profits.
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