NT Dollar Depreciates on Intervention of the CBC

Taipei, Oct. 2, 2009 (CENS)--The NT dollar depreciated NT$0.119 against the U.S. dollar closing at US$1=NT$32.319 yesterday (Oct. 1), thanks to the heavy intervention of the Central Bank of China (CBC) at the last moment of the trading session.

The CBC spent US$500 million to buy up the greenback on the forex market in a couple of minutes, in order to dampen the raid of international speculators, helping expand the trading volume to US$2.838 billion, almost double the average in previous sessions. The intervention reversed the course of the local currency, which originally appreciated NT$0.205 against the U.S. dollar, with the scale of fluctuation reaching NT$0.324.

The CBC intervened in sync with a similar move of the central bank of South Korea, both due to the awareness of the raid on Asian currencies by international speculators, in an effort to avoid the recurrence of Asian financial storm. Currency traders noted that over US$2 billion of foreign funds have flowed into the island in the past couple of days, in a bid to profit from the appreciation of the NT dollar.

While the initiative of the CBC may dampen the force of speculators, the pressure of appreciation on the local currency persists, as evidenced by the discount of NT$0.23 for non-delivery forward (NDF) yesterday.

Forex managers at banks noted that the CBC will try to avoid the local currency appreciating to a level exceeding US$1=NT$32, lest it would trigger a selloff of U.S. dollars by local businesses and people.

They pointed out that at least US$10 billion of extra foreign funds are ready to enter Taiwan to profit from the appreciation of the NT dollar, due to their outlook of a weak U.S. dollar and their anticipation of interest hikes by Taiwan and other Asian countries, one step ahead of the U.S. and Europe.

The appreciative pressure on the NT dollar is especially great, since it has revalued only 1.65% against the U.S. dollar so far this year, an extent much lower than many other Asian currencies, such as 6.7% of Korean won. The trend will be fueled by the advent of the busy season for local exporters in the fourth quarter.