The NT dollar hit a 35-month high yesterday as it broke the NT$31 benchmark against the US dollar, thanks to inward remittances combined with speculative selling pressure on the greenback.
The NT dollar surged NT$0.281 to close at NT$30.929, its highest level since March 14, 2005, when it closed at NT$30.832.
Combined turnover at the Taipei Foreign Exchange and the smaller Yuantai Foreign Exchange totaled US$2.442 billion, the eighth-largest on record.
The central bank's weaker-than-expected interventions, a drastic change from the previous trading sessions, raised eyebrows among dealers. But central bank Governor Perng Fai-nan (彭淮南) said the reason was the across-the-board slump of the US dollar.
Approached by reporters as he made his way out of the central bank's trading room, Perng said that since the greenback was hitting record lows against the euro and other major currencies, it made no sense to try to halt the NT dollar's appreciation.
Some dealers had a different interpretation.
"The central bank had to let go so that it doesn't have to raise interest rates too much to combat inflation," a dealer who requested anonymity said in a telephone interview.
Dealers said inflationary pressure is taking a toll on consumer spending in Taiwan, and with imported commodities surging to an all-time high, keeping the NT dollar from reflecting the trend will only add fuel to the fire.
Market watchers are predicting a 0.125 percent interest rate hike at the central bank's next board meeting, scheduled for March 27.
The wholesale price index soared 10.21 percent last month year-on-year and the consumer price index rose by 2.96 percent during the same period.
Dealers said inward remittances continued to flow into the market today, but the volume was moderate.
"I think it's the psychological effect [of the NT dollar's appreciation] that triggered a landslide of sell orders on the greenback from speculators and exporters," said another dealer who also preferred not to be named.
However, he said investors did not cancel their US dollar-denominated time deposits as some speculated they would.
"They simply converted the US dollar savings into other foreign currencies," he said.
Foreign investors continued their aggressive purchases on the local bourse yesterday, buying NT$21.32 billion in shares They have made more than NT$50 billion in purchases over the past three trading days, Taiwan Stock Exchange tallies showed.
The NT dollar has appreciated NT$1.514, or 4.9 percent, against the greenback since the beginning of this year.
Meanwhile, the greenback fell against major currencies in European trading yesterday morning, reaching a record low against the euro. The euro rose to US$1.5087 as sentiment increased that the US Federal Reserve would continue its rate cut campaign.
The euro hit a series of highs, culminating in US$1.5087 before falling back slightly to US$1.5031, nearly a full cent more than the US$1.4967 it bought in late trading in New York on Tuesday.
The dollar also fell against the yen, down to ?106.43, from ?107.26 and to 1.0693 Swiss francs, down from SF1.0759.
The British pound was quoted at US$1.9868, up from US$1.9862.
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