The New Taiwan dollar rose the most in three months as a US plan to inject liquidity into the world’s biggest economy spurred rallies in global stocks and bolstered investor demand for riskier assets.
The NT dollar climbed for a fourth day as stock exchange data showed purchases of Taiwanese equities by foreigners exceeded sales for the seventh straight day. All 10 of the most-active currencies in Asia outside Japan strengthened against the greenback after the US Federal Reserve pledged to buy as much US$300 billion of Treasuries and more mortgage bonds to help contain the deepening recession.
“The NT dollar, along with many regional currencies, has been benefiting from the improved investment sentiment in the past week and the continuing stock gains,” said David Cohen, director of Action Economics in Singapore.
The NT dollar appreciated 0.7 percent yesterday to close at NT$33.924 against the greenback. It earlier gained as much as 1.1 percent, touching a five-week high of NT$33.789.
The MSCI Asia Pacific Index of regional stocks surged more than 10 percent in the five trading sessions through yesterday, posting its longest winning streak since Jan. 5. The Standard & Poor’s 500 Index of US stocks rose to a one-month high.
Fed Chairman Ben Bernanke has stepped up efforts to prevent the credit contraction from deepening what already may be the worst recession in 60 years. The global slump is roiling Asian economies, which are almost twice as reliant on exports as the rest of the world. Taiwan’s overseas sales, equivalent to about 70 percent of GDP, fell 37.2 percent in the first two months of this year, the largest slide on record. China and the US are Taiwan’s biggest markets.
“It’s going to roller-coaster for a while with the uncertainties clouding the global outlook, and with Taiwan more exposed to the market’s collapse,” Cohen said.
The NT dollar faces a bigger risk of losses than most Asian currencies because Taiwan’s economy is more dependent on exports, Calyon said.
“We’ve yet to see the impact of the global slowdown on the NT dollar,” said Sebastien Barbe, the Hong Kong-based head of emerging market strategy at the investment-banking unit of France’s Credit Agricole SA. “Taiwan is very vulnerable because it’s very focused on exports. The risk in the currency is stronger than it used to be.”
Implied volatility on one-month US dollar-NT dollar options climbed to 11.4 percent, the highest since Nov. 25, Bloomberg data show. Traders quote implied volatility, a gauge of expected swings in exchange rates, as part of pricing options. The gauge was at 10.8 percent at the end of last year.
A similar measure of swings in the South Korean won fell to 31 percent on Wednesday from 50 percent on Dec. 31, while that for the Indonesian rupiah fell to 24 percent from 38 percent. Overseas shipments are equivalent to 60 percent of GDP in South Korea and 30 percent in Indonesia.
Taiwan’s foreign exchange reserves fell below the US$600 billion mark at the end of last month, with the central bank reporting a total of US$596.89 billion — a decline of US$8.6 billion from February — ending a three-month streak of increases. The central bank attributed the drop to a combination of factors such as outflows by foreign institutional investors, currency fluctuations and its own market interventions. “The large-scale outflows disrupted the balance of supply and demand in the foreign exchange market, prompting the central bank to intervene repeatedly by selling US dollars to stabilize the local currency,” Department of Foreign
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