Tue, Nov 16, 2010 - Page 11 News List

NT dollar climbs as hot money inflows continue

SPECULATION:Government bonds fell, pushing five-year yields to a four-month high on expectations that the central bank would raise interest rates next month

Bloomberg

The New Taiwan dollar climbed yesterday on speculation foreign investors would pump more funds into domestic assets to profit from an improving economy.

The currency reached a two-year high on Friday, buoyed by foreigners’ net purchases of US$2.3 billion of Taiwanese shares in the last two weeks.

Data due on Thursday is expected to show that the economy expanded 8.4 percent from a year earlier in the three months through September, based on the median forecast of economists surveyed by Bloomberg.

In the bond market, government debt fell yesterday, pushing five-year yields to the highest level in four months.

“Lots of hot money is flowing to Taiwan,” said Juan Hao-yun, a currency trader at King’s Town Bank (京城銀行). “There are no large outflows these days.”

The NT dollar strengthened 0.1 percent to close at NT$30.732 against its US counterpart, after advancing as much as 1.7 percent, Taipei Forex Inc said. It reached NT$30.015 on Thursday, the strongest level since March 2008.

The central bank, the Financial Supervisory Commission and the Ministry of Finance will study measures to manage hot-money inflows, the Ministry of Finance said in a statement on its Web site on Thursday.

Foreigners’ net purchases of Taiwanese shares since the start of this month accounted for 33 percent of this year’s total of US$6.9 billion, exchange data show.

Authorities likely intervened in late trading to stall the NT dollar’s appreciation, Juan said.

Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

“Most of the time, the Taiwan dollar is stronger than other Asian currencies during the trading day,” he said. “At the close, the central bank sets the Taiwan dollar in line with other Asian currencies.”

Taiwan’s benchmark five-year bonds fell on speculation the central bank would increase interest rates at its next quarterly policy meeting next month. The discount rate on 10-day loans to banks was raised to 1.5 percent on Sept. 30, compared with a record-low of 1.25 percent in June.

“Taiwan’s interest rates may be rising,” said Ray Cheng, a Taipei-based bond trader at SinoPac Securities Corp.

The yield on the 2 percent note due in July 2015 climbed 4 basis points to 1.03 percent, the highest level since June, according to GRETAI Securities Market, the nation’s biggest exchange for bonds.

Taiwan’s GDP shrank 1.9 percent last year, before recording growth of about 13 percent in the first two quarters of this year.

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