The New Taiwan dollar yesterday tumbled near a five-year low after China devalued its currency, cutting its reference rate against the US dollar by nearly 2 percent.
The NT dollar closed down 1 percent, or NT$0.32, at NT$32.08 against the greenback in Taipei trading, the lowest since Aug. 31, 2010, when it closed at NT$32.102, the central bank said.
Combined turnover on the Taipei Foreign Exchange and Cosmos Foreign Exchange markets soared to a six-year high of US$2.86 billion — more than triple Monday’s US$863 million.
“It is hard to tell when the local currency market will stabilize after the shocking decision by the People’s Bank of China [PBOC] earlier today [Tuesday],” a trader at a local bank who declined to be named said by telephone.
The People’s Bank of China changed the yuan’s official guidance rate by 1.9 percent to 6.2298 per US dollar, from 6.1162 on Monday.
The one-off devaluation pushed the yuan down 1.83 percent against the US dollar, deeper than the South Korean won’s 1.35 percent decline, central bank data showed. The Singaporean dollar softened 0.88 percent and the Japanese yen ended 0.26 percent lower, data showed.
China’s currency move created a big splash across the region and the world, as the nation of 1.3 billion gains in importance in global trade and economy.
“Local exporters rushed to buy the greenback for fear it may become more expensive going forward,” the trader said.
The central bank had no choice, but to jump on the “depreciation” bandwagon, he said.
Tsai Lien-sheng (蔡練生), secretary-general of the Taipei-based Chinese National Federation of Industries (全國工業總會), said that a depreciation of the NT dollar would be helpful to Taiwanese exports in the short term, but it is not the panacea to declining exports.
An export rebound hinges on a solid, long-term global economic recovery, Tsai added.
Moreover, Taiwan mainly exports information and communications technology products, and it will take time to digest excess inventories, he said.
The NT dollar has gradually, but steadily depreciated after annual exports slumped 13.9 percent in June and another 11.9 percent last month, central bank data showed.
Economists have called for a weaker NT dollar to boost the profit margins of exporters, as the nation’s major trade rivals have done, if the central bank considers a rate cut too drastic.
The ongoing correction on the local stock market could also weigh on the NT dollar in the near term, another currency analyst said by telephone.
The benchmark TAIEX finished 0.86 percent lower at 8,394.14 yesterday, with foreign investors cutting their positions by net NT$2.99 billion and proprietary dealers by NT$1.39 billion, Taiwan Stock Exchange data showed.
The nation’s poor economic showing has scared away foreign funds, while local players are playing it safe by staying on the sidelines, both of which will unfavorable to the NT dollar, the analyst said.
“It is premature to judge the depth of the NT dollar depreciation until major trade partners show restraint,” he said.
Additional reporting by CNA
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