The New Taiwan dollar continued to drop yesterday, reaching a four-year low against the greenback, after taking cues from the currency trend in major neighbors Japan and South Korea, though the central bank had earlier indicated unwillingness to join the depreciation war.
The NT dollar shed another 0.3 percent to fall to NT$30.876 versus its US counterpart in Taipei trading yesterday, the lowest level since NT$30.9 on Oct. 27, 2010, according to the central bank’s tallies.
Turnover amounted to US$802 million at Taipei Forex Inc and US$425 million at the smaller Cosmos Forex Inc, widening from US$63.9 million and US$305 million respectively a day earlier.
The depreciation came even though the TAIEX gained 1.18 percent to 8,963.24 yesterday on relatively large turnover of NT$91.23 billion, Taiwan Stock Exchange (TWSE) data showed.
Foreign institutional players increased holdings in local shares by a net NT$13.27 billion, while proprietary traders raised net stakes by NT$1.42 billion and mutual funds by NT$181.73 million, TWSE statistics said.
The fund movements suggested policy intervention has more to do with the NT dollar’s retreat, in line with the currency directions of neighboring countries, a local currency trader said on condition of anonymity.
It is common for currency traders in Taiwan to talk about the local unit off the record to avoid irking the central bank.
The NT dollar has shed 1.3 percent since Oct. 31, when the Bank of Japan announced plans to deepen quantitative easing to prop up economic growth, a milder drop than the yen’s 8 percent fall and the South Korean won’s 5 percent correction during the same period.
The local currency is likely to slip further and hit NT$31 in the short run once the Japanese currency drops to ￥120 against the greenback, the currency trader said.
Other financial institutions expect the yen to trade at ￥145 next year if Japan’s economy proves worse than expected.
“While reluctant to jump on the depreciation wagon, the central bank will have no choice but to soften the local currency to help Taiwanese exports stay competitive,” the currency trader said.
He also added that exporters would strongly protest if monetary policymakers failed to further depreciate the local unit.
External factors aside, domestic political developments also look unfavorable for the local currency, he said.
The ruling Chinese Nationalist Party (KMT) is likely to lose the nine-in-one elections by a landslide next week, which would deal a blow to market sentiment for a while and extend unease over political uncertainty into the presidential elections in the spring of 2016, he added.
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