Investors should buy the New Taiwan dollar using forward contracts due in six months to profit as forecast yuan gains and a trade accord with China are expected to spur demand for the nation’s currency, Standard Chartered PLC says.
The trade, first recommended on April 20, should be exited in the event that the NT dollar posts a daily close weaker than NT$31.80 against the greenback, the UK lender said in a research note published yesterday. It forecast the currency, which has gained 3.5 percent in the past six months, would strengthen 4.4 percent to NT$30 by the end of October.
“The economy is in recovery and the next two months may bring two key events that could be very positive for the [New] Taiwan dollar — the de-pegging of the dollar-yuan and trade liberalization between Taiwan and the mainland,” the note read.
The NT dollar closed at NT$31.359 in Taipei, 0.5 percent stronger than at the end of last week, data compiled by Bloomberg showed.
The six-month offshore non-deliverable forward traded at NT$30.68, reflecting bets the currency will gain 2.1 percent.
Forwards are agreements in which assets are bought and sold at current prices for settlement at a specified future date.
Non-deliverable forwards are settled in US dollars rather than the underlying asset.
China may allow the yuan to appreciate by June 30 to curb inflation, while avoiding a one-time jump in value that might hurt exporters, based on a Bloomberg survey of analysts published on April 13. The country is the biggest buyer of Taiwan’s exports and a stronger currency may spur demand for goods.
Shipments to China jumped 82 percent last month from a year earlier, driving a 50 percent increase in Taiwan’s overall exports, official figures showed.
Trade across the Taiwan Strait may pick up as the two governments discuss an economic cooperation framework agreement to reduce tariffs and boost cross-border investment, the bank said.
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