The New Taiwan dollar rose NT$0.02 higher yesterday against the US dollar, as exporters converted their greenbacks into the local currency ahead of the Lunar New Year holidays, dealers said.
Turnover was also extremely active, with the amount of transactions surging to US$2.326 billion, up 65 percent from US$1.413 billion on Thursday, according to Taipei Forex Inc.
The NT dollar closed at NT$32.178 against the US dollar, following trading between a high of NT$32.002 and a low of NT$32.233 during the session yesterday.
A currency dealer at the Union Bank of Taiwan (聯邦銀行) said that the 0.5 percentage point cut on the US interest rate by the Federal Reserve on Wednesday spurred exporters to sell their greenbacks, while inward remittances of foreign investors were also spotted.
Nevertheless, demands for the US dollar was firm, providing strong support and thus slowing the local currency's rise, said the dealer, who preferred to remain anonymous.
He said that after the Lunar New Year, an influx of funds into the local stock market might lift the NT dollar further. The forex market will remain open on Monday and Tuesday, and then will be closed between Wednesday and February 11 for the long holiday.
The NT dollar, however, may face a ceiling of NT$31.80 against the US dollar because of possible central bank intervention, the Union Bank dealer said.
The inability of the nation's economic fundamentals to support a strong NT dollar and increasing pressure on the redemption of funds investing in structural notes were also likely to cap the NT dollar's appreciation, he added.
In the near to medium-term, the NT dollar would also gain support from slower portfolio capital outflows, the Citigroup Global Markets said in a client note yesterday.
Citigroup economists Cheng Cheng-mount (
The Citigroup economists expect the Fed to cut the fund rates by an additional 0.75 percentage points by mid-year, while Taiwan's central bank may raise its discount rate by 0.125 percentage points at its quarterly meeting in March.
Meanwhile, increased external risk and financial market volatility associated with the slowing US economy and its lingering impact on other major industrial countries may also undercut investor attitude toward US and European assets, they said.
In comparison, the prospect of a more stable political scene in Taiwan and closer cross-strait economic relations following the March presidential election are likely to underpin the value of NT dollar amid strengthening investor confidence, they added.
"We expect portfolio capital outflows by residents to slow significantly, if not reverse, this year, which coupled with likely increased foreign capital inflows, would support NT dollar appreciation," Cheng and Chen wrote in the note.
Citigroup therefore revised its NT dollar exchange rate forecast and expects the NT dollar to fall below NT$32 per US dollar in the next three months.
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