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Taiwan dollar falls to four-month low on fund outflow

The new Taiwan dollar (NT) fell to a four-month low on concern investors will take money out of the nation to seek higher-yielding assets abroad.

The NT, along with the Japanese yen, dropped on speculation investors were borrowing the currencies at low interest rates and putting the money in higher-yielding assets abroad.

Taiwan's key rate is 2.75 percent, the lowest in Asia outside Japan, where the benchmark is 0.5 percent.

"The Taiwan dollar is following the yen," said Sadaaki Kondou, assistant general manager of the treasury department at Mizuho Corporate Bank Ltd in Taipei.

"There is still strong demand from domestic institutional investors to sell the Taiwan dollar to buy higher-yielding assets overseas. The bias is still for the Taiwan dollar to weaken," Sadaaki said.

The dollar was at NT$33.108 against the US currency at 4pm, the lowest close since Nov. 1, compared with NT$33.102 on Friday, the Taipei Forex Inc showed.

It could weaken to NT$33.25 this week, Kondou said.

Indonesia's rate is 6.25 percentage points higher than that in Taiwan and the Philippines' is 4.75 percentage points more.

Taiwan's 10-year government bonds advanced, snapping six days of losses, on speculation the monetary authority will stop raising interest rates this year.

``The chance of the central bank lifting rates after March is becoming smaller and smaller,'' said Eric Hsing, a Taipei-based bond trader at First Taisec Securities Inc (一銀證券).

"It'll be bullish news for the market if interest rates are indeed peaking," he said.

The yield on the benchmark 1 7/8 percent bond maturing March 2017 declined 0.2 basis point, or 0.002 percentage point, to 1.945 percent, the GRETAI Securities Market said. Its price climbed 0.0191, or NT$19.1 per NT$100,000 face amount, to 99.3726. Bond prices move inversely to yields.

A rate cut in the US will probably prompt Taiwan's monetary authority to stop lifting borrowing costs, Hsing said.

Policymakers have increased the benchmark rate every quarter since September 2004.

Options on Federal Fund futures at the Chicago Board of Trade show a 24 percent likelihood the US central bank will lower its target rate for overnight loans to 4.5 percent from 5.25 percent.
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