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NT's drop a blip, says CIER staffer

To the market's surprise, the NT dollar plummeted against its US counterpart for seven straight trading days in the past two weeks. But at least one economist sees the fall as a temporary blip.

The local currency's weakness will not last long, as the unit would stay at a relatively strong level by the end of this year pushed by the expectedly strengthening Chinese yuan, said Chou Ji (周濟), a director at the Chung-Hua Institute of Economic Research's (CIER, 中經院) economic forecast center.

The NT dollar weakened from NT$32.129 versus the greenback on Aug. 23 to NT$32.751 on Aug. 31. For the month, the unit dropped by 2.6 percent.

The Taipei foreign exchange market was closed on Thursday due to Typhoon Talim and the NT dollar shot up NT$0.222 to close at NT$32.529 against the US dollar on Friday.

"The steep depreciation of the NT dollar was just a short-term phenomenon along with the weakening of other Asian currencies," Chou said.

The fall was caused by capital outflow to the US, driven by the strengthening greenback and high US interest rates following the US Federal Reserve's frequent rate hikes, Chou said. The NT dollar, however, is expected to recover gradually against the US dollar through the year-end pushed by capital inflow on expectation of a rising yuan and a possible change in the Fed's policy, he said.

CIER has predicted the unit will be traded at around NT$31 versus the greenback by year's end, compared to a level of NT$31.9 at the end of last year, based on figures provided by the central bank.

Goldman Sachs predicted in May that the NT dollar would strengthen to NT$28.5 versus the US dollar. Last week it readjusted its forecast for the local unit to NT$31 against its US counterpart.

The central bank, however, seems to be in favor of a weaker NT dollar, as it said last week that the scale of NT dollar's appreciation for the past year has not spurred inflationary pressure.

For year to Friday, the NT dollar had strengthen by 4.28 percent against the US dollar, compared with a rise of 2.85 percent for the euro. It is also compared to a decline of 0.11 percent for the yen over the same period, according to the bank's statistics released on Friday.

"The nation's economy is not good enough to afford appreciation [of the NT dollar]," said Kung Ming-hsin (龔明鑫), an economist at the Taiwan Institute of Economic Research (TIER, 台經院).

"A relatively weak currency is better for the nation's economy ? that has seen a largely shrinking trade surplus in the year to date, in part due to the appreciation that affected exports," Kung said.

TIER expects the NT dollar to be traded at between NT$32.5 and NT$33 against the greenback by the end of the year.

Kung predicts the central bank could hike its benchmark interest rates for a fifth straight quarter by 0.125 percentage points later this month in an attempt to narrow the rate difference with the US.

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Analysts wonder what US Fed's next move will be

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