While investors are taking shelter in the US dollar amid the global economic downturn, there is little room for the local currency to strengthen. Still, the New Taiwan dollar rallied against the greenback for the third straight day yesterday, economists and dealers said. Pu Yong-hao (浦永灝), head of UBS Asia Research, said investors would remain cautious in allocating their assets as the financial crisis, triggered by credit expansion on Wall Street, has yet to stabilize.
“The cash woes plaguing companies like AIG have shown no sign of easing,” Pu told a news conference on global investment strategy in Taipei yesterday. “Investors will continue to avoid high-risk products and favor government debts and the US dollar before the situation stabilizes.”
Against this backdrop, Asian currencies including the NT dollar appear less attractive, although the credit crunch poses less of a threat to the region, where financial sectors are relatively stable, the economist said.
The NT dollar rose 0.34 percent, or NT$0.122, to trade at NT$34.945 against the US currency at close of trading in Taipei yesterday.
Turnover was US$1.081 billion on the Taipei Forex and US$611 million on the smaller Cosmos Foreign Exchange, for a total of US$1.692 billion, data from the two companies showed.
A currency dealer, who preferred to remain anonymous, attributed the rebound to a technical price adjustment that should not be mistaken for sustained recovery.
“The central bank, known for its distaste for currency speculation, likes to keep the value of the NT dollar unpredictable,” the trader said by telephone. “But the signal that the currency will further weaken appears unchanged, given the grim economic outlook.”
The dealer said the government and industrialists would be irresponsible if they made moves or comments to play down the magnitude of the economic crisis.
“Doing so would only trap investors rather than boost confidence if the situation later proved otherwise,” he said.
Kevin Hsiao (蕭正義), head of UBS Wealth Management Research in Taiwan, said the South Korean won and the NT dollar remained closely tied, but that declines in both currencies would have a limited impact on lifting exports.
Hsiao said the deterioration was expected to persist.
“Emerging markets and their currencies, including the NT dollar, will weaken because they are not considered good risk-aversion instruments in times of turmoil,” Hsiao said, adding that they would regain value appeal after the crisis has passed.
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