The New Taiwan dollar surrendered the bulk of yesterday’s gains toward the end of the trading session as the central bank intervened to curb appreciation that may hurt exports, traders said.
At its close in Taipei trading, the NT dollar was up NT$0.06, or 0.19 percent, at NT$31.25. At one point in morning session, the local currency was trading at NT$30.976 against the US dollar — its highest level since August 2008, when it briefly hit NT$30.915.
Turnover was US$873 million at Taipei Forex Inc. Including turnover at the smaller Cosmos Foreign Exchange Inc, total transactions reached US$1.38 billion.
A local trader said the sharp rise in the NT dollar yesterday reflected not so much the inflows of hot money as a weakening US dollar, after the central bank on Thursday raised its key policy rates for the second time this year.
“The rise of the local currency is overrated,” a trader at a local bank said on condition of anonymity, adding that the Indian rupee appreciated the most among Asian currencies last month, while the NT dollar ranked fourth with a 2.28 percent rise.
While many people seem to have associated the rise of the local currency with the inflow of foreign funds, the trader downplayed that notion, saying that foreign capital turnover didn’t see a sharp rise yesterday.
The central bank likely intevened toward the end of trading to stabilize the local exchange rate and prevent substantial foreign exchange losses by domestic exporters, he said.
He predicted that the local currency would see a correction next week and hover between NT$31 and NT$32 in the near term.
Another trader at Shin Kong Commercial Bank said that as Taiwan was one of the targets of international funds, the central bank could turn “more aggressive” in curbing appreciation to keep the exchange rate at the NT$31 level.
Institutional investors are mostly upbeat that the NT dollar will keep moving up against the greenback. Affected by the strong rise of the NT dollar, investors shied away from export-oriented electronics stocks during yesterday’s session.
Traders said that the appreciation of the local currency would increase electronics firms’ foreign exchange losses and was also likely to squeeze their revenues and gross profit margins.
They said that if the NT dollar rose by 1 percent against the US dollar, the gross profit margins of chip foundry United Microelectronics Corp (聯電) and IC packaging and testing service provider Advanced Semiconductor Engineering Inc (日月光半導體) would shrink by 0.5 percentage points and 0.2 percentage points respectively.
However, a stronger NT dollar could be positive to asset-backed shares, spurring a sharp rise in construction shares yesterday.
Separately, the central bank said it intended to auction NT$100 billion in 364-day certificates of deposit (CD) on Friday as part of its efforts to absorb excess liquidity in the banking system.
The central bank has sold such CDs six times this year with a total value of NT$600 billion, which would be considered as tantamount to hiking the reserve requirement ratio by 2.35 percentage points.
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