The New Taiwan dollar fell back slightly from a five year high against the greenback yesterday after aggressive intervention by the central bank and with traders turning cautious ahead of the release of US trade data for January, dealers said.
But further intervention by the central bank could mean more risks of capital losses, Lehman Brothers Inc warned in its latest research report released earlier this week.
"Most people chose to keep to the sidelines ahead of the release of the US trade figures, despite a consensus expectation that the US trade deficit would widen further to US$58 billion," a dealer said on condition of anonymity.
The NT dollar slid NT$0.03 to end at NT$30.820 against the US currency yesterday on the Taipei foreign exchange market. Turnover fell to US$621 million from a massive US$1.75 billion in the previous session.
A panic sell-off of US dollar holdings by local exporters was prevented by the central bank's cooperation with other Asian central banks to prevent a drastic appreciation of regional currencies on Thursday, he said.
He estimated that the central bank spent around US$600 million to buy US dollars to limit the NT dollar's rise.
He also attributed the NT dollar's slight decline to overseas fund managers' slower purchase of local shares. Foreign investors bought a net NT$473 million's worth of local stocks yesterday instead of several billions per day in the past months.
Another dealer, who also requested not to be named, said the central bank's move has effectively reined in the local currency's appreciation.
"The central bank's determination to steer the NT dollar's rise at a measured pace has snuffed out some wild speculation about a steep revaluation," he said.
With the central bank closely monitoring the exchange rate, the local currency is unlikely to breach the next psychological level of NT$30.5 against its US counterpart before the end of the month, he said.
Asian central banks have apparently effectively curbed the steep appreciation of currencies in the region, although further intervention could increase the central banks' risk of suffering capital losses if the greenback continues its slide, Lehman Brothers Inc warned.
"If Asian central banks continue to recycle global savings to finance the US current account deficit at the same rate as in 2004, they will become heavily exposed to any major slide in the US dollar," Lehman Brothers economist Rod Subbaraman said in the firm's latest report.
A 30-percent decline in the value of the US dollar in terms of local currencies at the end of next year would result in capital losses equivalent to over 20 percent of GDP for the monetary authorities in Singapore, Malaysia and Taiwan, he said.
The central bank's intervention in the local foreign exchange market recently came into the spotlight in the political arena and academic circles.
People First Party Legislator Christine Liu (
"That should be a last resort when the market collapses," Liu said.
However, Wu Chung-shu (吳中書), an Academia Sinica research fellow, said he fully supports the central bank's measures, as the inflation risk is expected to be low this year.
Wu said the central bank should step in at the proper time to prevent the local currency from appreciating sharply, which could stifle Taiwanese exports.
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