The New Taiwan dollar rose 0.45 percent yesterday, surging past the NT$33 mark against the US currency, as investors poured more funds into the local bourse in hopes of taking profits from improving cross-strait trade, analysts said.
The local currency gained NT$0.151 to close at NT$32.889 against the greenback, its strongest level this year, Taipei Forex Inc data showed.
Jack Huang (黃蔭基), head of research at SinoPac Financial Holdings Co (永豐金控), attributed the NT dollar’s rise to a continued influx of hot money and capital repatriation after the government cut the inheritance tax to a flat 10 percent, from a range of 2 percent to 50 percent.
The benchmark TAIEX rose 63.63 points to close at 6,647.5 on turnover of NT$189.61 billion (US$5.8 billion) after rallying 9.9 percent last week, Taiwan Stock Exchange tallies showed.
Huang said the NT dollar could strengthen further this year on the back of the expected sequential quarterly improvement in economic fundamentals, while demand for the US dollar could weaken because of the US Federal Reserve’s quantitative easing policy.
“Except for the jobless rate, major economic indicators have shown improvements,” Huang said by telephone. “The situation will turn even better in the second half.”
SinoPac Financial forecast that the NT dollar would trade at an average of NT$33.2 versus its US counterpart this year. On a quarterly basis, the local currency is expected to strengthen from an average of NT$33.9 in the first quarter to NT$33.5 in the second quarter, NT$33 in the third quarter and NT$32.5 in the fourth quarter.
Huang said the central bank was unlikely to allow the NT dollar to climb over the NT$32.3 level, saying the monetary regulator’s tolerance for fluctuation was limited to NT$3 a year at the most. The NT dollar dipped to a low of NT$35.3 in February. The local currency opened yesterday at NT$33.04 and traded between NT$32.821 and NT$33.04 during the day.
A dealer at a local bank agreed that capital inflows contributed to the NT dollar’s appreciation.
But the dealer, who requested anonymity, said he believed the central bank would halt the rally once the NT dollar reaches the NT$32.6 mark against the greenback.
“Exporters are bound to complain if the [NT dollar’s] rally continues unchecked,” the trader said by telephone. “The central bank is well aware of the importance of exports on the economy.”
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