The New Taiwan dollar yesterday rallied to its strongest in three years amid inflows to the nation’s stock market and broad-based weakness in the US dollar.
Exporter sales of the US currency and a repatriation of funds from local asset managers also played a role, said two traders, who asked not to be identified as they were not authorized to speak publicly.
State-owned banks were seen buying the greenback yesterday, but only at a moderate scale, the traders said.
Photo: Tyrone Siu, Reuters
The local currency gained 0.77 percent, outperforming almost all of its Asian peers, to close at NT$29.165 per US dollar in Taipei trading yesterday.
The NT dollar’s gain was lower than the yen’s 0.87 percent rise, but ahead of increases of 0.59 percent for the won, 0.48 percent for the Singaporean dollar and 0.06 percent for the yuan, central bank data showed.
There were rumors in the market that the central bank had suggested some large exporters to sell US dollars after 10am to prevent concentrated buying of the NT dollar during the critical market opening hours and avoid strengthening the currency’s appreciation expectation, local media reported.
Market watchers are monitoring whether the central bank would intervene to defend the NT$29 mark against the US dollar after the local currency surpassed NT$29.5 mark early this week.
“The Executive Yuan will continue to pay attention to the NT dollar’s exchange rate and make appropriate responses, while respecting the central bank’s relevant actions,” Executive Yuan spokeswoman Michelle Lee (李慧芝) said yesterday after a Cabinet meeting.
The central bank has told foreign investors to exit bets on the NT dollar, taken through exchange-traded funds (ETFs), as a 12 percent gain in the local currency threatens the country’s economy and companies.
The strategy involves investors buying the ETFs and inverse ETFs, allowing them to accumulate holdings of NT dollars while maintaining a neutral position in the stock market.
Foreign funds have been “repeatedly” deploying that playbook to speculate on the local currency, central bank Deputy Governor Yen Tzung-ta (嚴宗大) said at a meeting of the legislature’s Economics Committee in Taipei on Wednesday. “As soon as we detect it, we immediately request that the funds be remitted out.”
Last month, the NT dollar notched its biggest single-day gain since the 1980s. The almost unprecedented rally is posing a risk to the country’s export-reliant economy and putting pressure on the life insurance industry, which has massive exposure to US dollar assets.
“Local exporters still have a lot of dollars to sell given the strength in exports, and life insurance companies will want to manage their currency risk by hedging more in case of further US dollar weakness,” Australia and New Zealand Banking Group Ltd head of Asia research Khoon Goh (吳昆) said yesterday. “It only seems a matter of time before Taiwan dollar’s key level of 29 is surpassed.”
Additional reporting by staff writer
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