The NT dollar hit a two-week high yesterday as it broke the NT$30.50 level against the US dollar, thanks to market speculation that the central bank would tolerate the local currency's appreciation to curb inflation, traders said.
The local unit was also supported by the weak US dollar after global crude oil prices hit a fresh record high during the session, they said.
At its closing in Taipei trading, the NT dollar rose NT$0.085 to NT$30.499, its highest level since May 6, when it closed at NT$30.490 against the greenback.
Turnover was US$1.494 billion at Taipei Forex Inc yesterday, up from US$1.248 billion on Tuesday. Including turnover at the smaller Yuantai Foreign Exchange Inc, total transactions reached US$1.915 billion in Taipei trading.
FUEL PRICE HIKES
“The market is concerned about the Cabinet’s fuel price hikes next month and expects the central bank may be under political pressure to allow more room for the NT dollar to appreciate,” a local currency trader, who requested anonymity, said by telephone yesterday.
While foreign institutional investors sold a net NT$12.24 billion (US$401.4 million) in local shares yesterday, driving the benchmark TAIEX down 0.59 percent to close at 9,015.57 points, speculation that the government may prefer a strong NT dollar to combat import inflation helped drive the local unit higher, he said.
The NT dollar rose by NT$0.454 or 1.47 percent between last Thursday and Monday before it declined NT$0.036 or 0.12 percent on Tuesday, the Taipei Forex Inc’s tallies showed.
“Yesterday’s 0.28 percent rise confirmed the appreciation pressure on the NT dollar. But since the local unit has risen by 6 percent so far this year, its further gains will be range-bounded,” the trader said.
Another currency trader said the NT dollar was facing a short-term upside push as the discount on one-month offshore US dollar non-deliverable forward (NDF) contracts expanded from NT$0.05 to NT$0.12, indicating that the market was short on the US dollar and expecting the NT dollar to strengthen further.
The pace of the NT dollar’s appreciation, however, will be closely monitored by the central bank amid concern that the nation’s export-oriented economy will lose its competitiveness to its Asian rivals, said the trader, who also declined to be named.
In Seoul trading yesterday, the won plunged to a fresh low of 1,057.60 against the US dollar before it pulled back and closed at 1,042.20 because of intervention by the South Korean central bank.
“The won has weakened more than 10 percent this year and that certainly has put Taiwan’s central bank on alert as the NT dollar has appreciated by 6 percent over the same period of time,” he said.
“The central bank eventually has to take into account the narrowed profit margins of local DRAM and handset makers who compete with their South Korean peers directly,” he said.
Daniel Hui, a Hong Kong-based currency strategist at HSBC Holdings, said yesterday that the NT dollar may have a slower-than-expected appreciation as the new government will be slow to deliver on promises to improve relations with China, the Bloomberg newswire reported.
HSBC is maintaining its forecast for the NT dollar to trade at NT$30 for the rest of the year, the report said.