The New Taiwan dollar weakened to below NT$32 per US dollar for the first time in more than four years on growing demand for the greenback as the US moves toward raising interest rates, while Europe looks set to boost its monetary stimulus.
European Central Bank (ECB) President Mario Draghi said policymakers “have to act against” deflation risks, fueling bets the authority is set to start buying sovereign notes, according to a report in Germany’s Handelsblatt newspaper published last week.
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, has risen 1.1 percent this year following an 11 percent advance last year. The TAIEX fell 0.36 percent yesterday as the local bourse reopened following the new year holiday.
“The US dollar is very strong,” Union Bank of Taiwan (聯邦銀行) Taipei-based currency trader Tarsicio Tong (湯健揚) said. “There might also be outward remittances from Taiwan now that the stock market is falling.”
Taiwan’s dollar fell 0.9 percent, the steepest decline since May last year, to NT$32.005 against the US dollar, according to prices from Taipei Forex Inc. The currency earlier dropped to NT$32.022 against the US dollar — the weakest level since September 2010.
One-month non-deliverable forwards declined 0.8 percent to NT$32.015 against the greenback, Bloomberg-compiled data show. One-month implied volatility, a measure of expected swings in the exchange rate, rose 11 basis points to 5.08 percent. The gauge touched 5.17 percent yesterday, the highest since July 2013.
In the NT dollar bond market, the yield on government notes due in September 2024 fell three basis points, or 0.03 percentage points, to 1.586 percent, GRETAI Securities Market prices show.
Taiwan is scheduled to sell NT$35 billion (US$1.1 billion) of bonds due 2018 at 0.83 percent, according to the median estimate in a Bloomberg News survey of nine debt traders, before the first auction of three-year notes since 1995.
While deflation risks are “limited,” policymakers “have to act against such risk,” Draghi said, according to the report in Handelsblatt.
Asked how much the ECB might spend on government bonds, he said that it was “difficult to say.”
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