The NT dollar dropped to a seven-week low against the greenback amid concerns of a foreign capital outflow, dealers said.
Across the region, most Asian currencies also weakened against the US dollar as market watchers expected the US Federal Reserve to hold on to interest rates after lowering the federal funds rate to 2 percent from 5.25 percent in mid-September to stave off inflation, they said.
At its close in Taipei trading, the NT dollar dropped NT$0.303, or 1 percent, to NT$30.824 —the lowest since March 17, when the local currency closed at NT$30.850 against the greenback, Taipei Forex Inc’s tallies showed.
Turnover hit US$3.083 billion at Taipei Forex Inc yesterday, up nearly 1.8 times from US$1.138 billion on Wednesday. Including turnover at the smaller Yuantai Foreign Exchange Inc, total transactions reached US$3.839 billion in Taipei trading yesterday, the second-highest after the US$3.932 billion recorded on Jan. 15.
“The NT dollar is likely to continue its recent correction through May 20 when the new administration takes office, as foreign investors appear to be waiting for clearer policy moves to decide whether they want to bring in their funds,” a local currency trader, who requested anonymity, said by telephone yesterday.
Foreign institutional investors sold a net NT$14.57 billion in local shares yesterday, driving the benchmark TAIEX down 59.72 points, or 0.67 percent, to close at 8,866.62 on the Taiwan Stock Exchange.
For the first four days of the week, foreign investors offloaded a net NT$29.76 billion in local stocks, with trading restricted to a narrow range, the stock exchange’s tallies showed.
“Speculation that the Fed’s rate cuts may come to an end or that it may even turn around and raise rates to combat inflation have helped drive the NT dollar lower in line with other softening Asian currencies,” the trader said.
The South Korean won, the Malaysian ringgit, the Singaporean dollar, the Philippine peso, the Thai baht and the Chinese yuan all dropped to their recent lows in trading yesterday, as market players began to unwind their short positions on the US dollar, he said.
Another trader said there was also some short covering of US dollar non-deliverable forward (NDF) contracts after the discount on one-month offshore NDF contracts turned into a premium, indicating that the market was expecting the NT dollar to weaken against the greenback.
“The central bank has also entered the market and adjusted its US dollar position around the NT$30.4 to NT$30.5 level, which could mean it did not want to see the NT dollar rise through that level in the short term,” said the trader, who also preferred not to be named.
“Some exporters were too bearish on the US dollar and built too many short positions. Now they are forced to unwind those positions in light of a likely reversal in the US dollar’s downward trend,” he said.
The trader predicted that the NT dollar may trade between NT$30.93 and NT$30.95 prior to May 20. So far this year, the NT dollar has gained 4.99 percent against the greenback.