The New Taiwan dollar yesterday closed at its highest level since 1997 and more gains are likely on the way as the central bank eases its grip on the currency.
The NT dollar gained 0.5 percent to NT$28.521 against the US dollar at the close, stronger than its NT$28.632 high in 2011.
The currency rose 1 percent over the past five sessions, advancing for a fifth week, the longest run since July.
Surging fund inflows that sent the TAIEX to a record of 14,132.44 yesterday and the resilient economy are putting pressure on the currency to appreciate.
One-month forwards on the NT dollar are at an all-time low, signaling further gains ahead.
Analysts predict that the currency will continue its ascent, climbing to 28.4 by the end of next quarter, according to the median estimate in a Bloomberg survey.
“This could be the trigger point,” said Stephen Chiu (趙志軒), a strategist for Bloomberg Intelligence. “As long as broad US dollar weakness continues and Taiwan’s multilateral exchange rates are still not overvalued in the eyes of Taiwan’s central bank, then the exchange rate may head further downward.”
After trading ended for the day, Yen Hui-huang (顏輝煌), director of the Department of Foreign Exchange at the central bank, said that there is “no so-called line of defense” for the currency.
“The exchange rate is decided by the market’s supply and demand,” Yen said.
The central bank said in a statement after the close of trading that foreign exchange reserves last month rose US$12.2 billion from a month earlier to US$513.4 billion, due in part to its measures to “smooth” the currency market after large capital inflows caused volatility.
The monthly increase was the biggest on record, according to central bank data going back to 2003.
The NT dollar’s new high came after central bank Governor Yang Chin-long (楊金龍) this week promised lawmakers that he would provide more information about efforts to curb the currency’s advance.
Such intervention can draw the unwelcome attention of the US Department of the Treasury.
The local currency on Thursday breached a key intraday resistance level that is closely watched in Taiwan. That level is at NT$28.5 and is called the “Perng Fai-nan line” (彭淮南防線), after the central bank governor from 1998 to 2018.
Perng is credited with mostly keeping the currency from appreciating past that mark from the Asian Financial Crisis to his last day on the job, primarily to protect exporters.
Recent stability in the local currency meant that it had fallen behind neighboring exporters.
Now the question for traders is where Perng’s successor and long-time deputy Yang will draw the next line in the sand and how long that will hold.
There are “very strong expectations” that Taiwan’s currency will advance, said Zhou Hao (周浩), senior emerging markets economist at Commerzbank AG. “It will be very difficult for there to be any significant retreat in the near term.”
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