A gauge of volatility in the New Taiwan dollar jumped to a three-year high as a breakdown in Greek debt negotiations damped demand for emerging-market assets.
Talks over Greece’s borrowing ended on Monday as the nation rejected a eurozone proposal to extend its existing bailout conditions, increasing the risk that it will default or leave the euro. Volatility in the yuan rose for a second day as the onshore spot rate weakened on signs capital is leaving China, Taiwan’s largest export market.
“In the near term, there are continued concerns on the Greece front, which are keeping the market on its toes,” said Prateek Gupta, a currency strategist at Nomura Holdings Inc in Singapore. “Also, investors may be looking at the [New] Taiwan dollar as a way of hedging their China risk.”
One-month implied volatility in the NT dollar, a gauge of expected fluctuations used to price options, rose 12 basis points, or 0.12 percentage point, to 6.13 percent as of 4:27pm in Taipei, Bloomberg-compiled data showed. The measure reached 6.39 percent earlier, the highest since December 2011.
The NT dollar dropped 0.1 percent to close at NT$31.638 against the US dollar yesterday, Taipei Forex Inc prices show. The local currency opened at NT$31.605 versus the greenback and varied between NT$31.46 and NT$31.64 before the close.
The NT dollar slipped 0.3 percent in the 30 minutes before the market closed amid suspected central bank intervention, compared with an average 0.1 percent drop in the final half hour of trading over the past year.
The authority has sold the NT dollar in the run-up to the close on most days since March 2012, according to traders who asked not to be identified.
The spot market is closed from today through Monday for the Lunar New Year holidays. One-month non-deliverable forwards declined 0.4 percent to NT$31.565, according to data compiled by Bloomberg.
The government on Monday raised its economic growth forecast for this year to 3.78 percent after expansion in the last quarter beat estimates, while cutting the inflation projection to 0.26 percent from the 0.91 percent estimated in November last year. At least a dozen central banks from China to India have eased monetary policy this year to spur growth and inflation.
The South Korean won has fallen 2.3 percent over the past month and the yen 0.9 percent, while the NT dollar was little changed. Taiwanese companies compete with South Korean and Japanese firms in international markets.
“The concerns about foreign-exchange competitiveness among onshore participants have risen recently,” Gupta said. “Given the easing occurring globally, there is a rising risk of pro-growth policy, which could emerge through an even stronger preference for [the New] Taiwan dollar weakness.”
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