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NT dollar set to continue downward, UBS predicts

The New Taiwan dollar is set to continue its downward trend, UBS Investment Research said yesterday as it adjusted its forecast on the local currency to NT$32.2 against the greenback by the year’s end, compared with its previous estimate of NT$30.1.

“[The] interest-rate outlook is negative for the NT dollar,” UBS economist Sean Yokota said in a report released yesterday.

UBS forecast the central bank was likely to have one more hike of 12.5 basis points at its quarterly board meeting later this month, as the central bank is expected to focus on the downside risk to growth instead of the upside risk of inflation.

At the close in Taipei trading yesterday, the NT dollar climbed NT$0.074 to NT$31.761 against the US currency on speculation that the central bank would sell some of its US$291 billion in foreign-exchange reserves to bolster the local currency.

The NT dollar has been trading around fresh six-month lows in recent days as investors fretted about Taiwan’s economic outlook. UBS forecast the nation’s economy would slow further over the next four quarters with an average growth rate of 3.3 percent.

Slower exports will reduce the nation’s current account surplus, which will contribute to the NT dollar’s weakness, it said.

Nevertheless, the “central bank appears more comfortable with [a] weaker NT [dollar]. With oil prices falling from US$140 to almost US$100 [per barrel], the central bank appears to be less worried about imported inflation pressures and hence more comfortable with NT [dollar] weakness,” Yokota wrote in the report.

UBS forecast that the NT dollar would trade at NT$31.9 against the greenback by the end of next year, compared with its previous estimate of NT$29.3. However, it maintained its economic growth forecast for Taiwan at 3.9 percent this year and 3.8 percent next year.
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