The New Taiwan dollar fell for a second day as speculation that China would loosen its fixed-currency policy during a week-long holiday that ended yesterday proved unfounded.
"After nothing happened during the holiday, revaluation speculation will probably keep fading away gradually," said Takashi Yano, vice president of the derivatives and foreign exchange marketing department in Tokyo at UFJ Bank Ltd, a unit of Japan's fourth-largest lender. "Currencies such as Taiwan's dollar that were bought on a revaluation story will weaken."
The yuan on April 29 rose to the highest level in a decade as the spot market increased the view that China would ease its peg during the holiday to allow the currency to appreciate.
The NT dollar fell NT$0.069 to close at NT$31.229 against its US counterpart. It may slide to NT$31.50 in a few days, Yano said.
But a decline in the NT dollar may be limited by speculation that foreign investors will keep putting money in the nation's equities before Morgan Stanley Capital International Inc raises the weighting of Taiwan stocks in global indexes to 100 percent from 75 percent on May 31.
Investors based outside Taiwan were buyers of stocks for 10 straight days through yesterday, purchasing a net US$1.48 billion, according to Taiwan Stock Exchange figures. That compared with net sales of US$791.4 million last month.
"We have seen quite a big volume of stock inflows into Taiwan and that should provide support for the local currency," said Sadaaki Kondou, assistant general manager of the treasury department in Taipei at Mizuho Corporate Bank Ltd.
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