Fri, Sep 12, 2008 page12

• NT dollar drops to seven-month low on outflows

  REGIONAL FACTORS A Union Bank trader said the central bank’s restricted role in defending the local currency may have been related to a fall in the won

  • By Kevin Chen / STAFF REPORTER
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  The strengthening US dollar and continued foreign capital outflows have caused the NT dollar to weaken, breaking through the NT$32 level to a new seven-month low yesterday.

  At its close in Taipei trading, the NT dollar dropped NT$0.177, or 0.56 percent, to NT$32.040 — the lowest since Feb. 5, when the local currency closed at NT$32.01 against the greenback.

  INTERVENTION

  In early trading, the NT dollar dipped NT$0.217, or 0.69 percent, to NT$32.08, but recouped part of its losses following mild intervention by the central bank.

  Turnover was US$1.596 billion on the Taipei Forex Inc yesterday. Including turnover at the smaller Cosmos Foreign Exchange Inc, total transactions reached US$2.15 billion in Taipei trading.

  “The decline in the NT dollar today is in line with the across-the-board weakness in Asian currencies against the US dollar as well as the [weak] euro,” an anonymous trader at Union Bank of Taiwan (聯邦銀行), said by telephone yesterday.

  The euro slid yesterday below US$1.39 for the first time in a year after the European Commission gave a bleak outlook for the eurozone economies on Wednesday.

  But the trader attributed the drop in the NT dollar and the central bank’s restricted role in defending the currency to a 1.28 percent drop in the South Korean won, which closed at 1,109.5 against the US dollar yesterday, down from 1,095.5.

  KEY RIVAL

  South Korea is one of the nation’s main rivals for exports and a stronger local currency can therefore hurt either country’s competitiveness.

  So far this year, the NT dollar has appreciated 1.25 percent, while the won has depreciated by 15 percent, the trader said.

  Continued capital outflows from Asia, including Taiwan, have led to a slide in local equities and a drop in Asian currencies in recent weeks.

  In Taiwan yesterday, foreign institutional investors sold a net NT$11.06 billion in Taiwanese stocks, the Taiwan Stock Exchange’s data showed.

  So far this month, foreign investors have offloaded a net of NT$75 billion in local equities, compared with NT$29.85 billion last month, the stock exchange’s tallies showed.

  LOOKING ELSEWHERE

  “When foreign investors foresee slowing demand in Asian exports, they move funds away from this region. They will return to this region only when the economic fundamentals improve,” the trader said.

  “As a result, there’s no reason to expect a stronger NT dollar in the short term,” the trader said.

  As usual, the central bank said last night in a faxed statement that the NT dollar was “relatively stable,” comparing the currency’s 0.56 percent setback yesterday to the won’s 1.28 percent drop and the Singapore dollar’s 0.75 percent drop.
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