Taiwan curbs bullish bets as local dollar rises
Amid fears over export competitiveness, island's central bank tries to stabilise local currency
Bloomberg in Taipei
Taiwan, seeking to rein in the local dollar and boost export competitiveness, tightened limits on domestic banks' bullish bets on the currency following the yen's tumble to the lowest level since 2008.
The central bank reduced the daily cap on the net US dollar short position that can be held by each bank to US$5 million from US$10 million, according to Spencer Lin, director general of foreign exchange.
The rule, which aims to "stabilise" the Taiwan dollar, was due to come into effect yesterday, he said. A short position in the greenback is a bet on depreciation against the local currency, and traders were informed of the clampdown yesterday.
The island's electronics exporters are struggling to compete against Japanese rivals including Sony after the local dollar strengthened 22 per cent to a five-year high versus the yen in the past six months.
Gross domestic product increased in the first quarter at less than half the pace economists estimated, putting pressure on policymakers to weaken the currency to protect overseas sales.
"It's very apparent that the central bank wants to send the local currency lower," said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong. "The Taiwan dollar has been depreciating against the greenback lately, but the yen depreciates even more. The purpose is to keep Taiwan's goods competitive in overseas trade."
Taiwan is seeking to support overseas shipments that slumped 1.9 per cent in April after the yen slid 20 per cent against the greenback in the past six months and touched 103.74 per dollar on Wednesday, its weakest level since October 2008. The island's currency fell 2.7 per cent in the same period.
The Taiwan dollar rose 0.3 per cent to NT$29.955 versus the greenback yesterday in Taipei, having erased a 0.5 per cent advance in the final two minutes of trading yesterday on suspected intervention. The central bank has sold the local currency toward the close on most days for more than a year, according to traders who asked not to be identified.
One-month non-deliverable forwards for the Taiwan dollar fell 0.3 per cent to NT$29.995 versus the US dollar, the big- gest loss in a week, according to data.
The one-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased by 18 basis points, or 0.18 percentage point, to 4.71 per cent.