Like Fed and Treasury, Taiwan central bank 'consults' with traders

Section:

Nice currency-trading shop you have here. What a shame if anything should happen to it.

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Taiwan Central Bank Urges Reduction in Dollar-Drop Bets

By Yu-huay Sun
Bloomberg News
Thursday, September 24, 2009

http://www.bloomberg.com/apps/news?pid=20601080&sid=ankufzlVnArA

TAIPEI, Taiwan -- Taiwan's central bank urged lenders to reduce their bets against the U.S. dollar after the island's currency reached a three-month high, according to traders at foreign banks.

An official at the Central Bank of the Republic of China (Taiwan) called and advised against taking too many U.S. dollar short positions, said the two traders, who asked not to be identified to safeguard their relationships with the monetary authority.

Surging overseas investment in local equities has helped drive Taiwan's currency 4.3 percent higher versus the greenback in the past six months, eroding the competitiveness of manufacturers. The island's export orders, an indicator of actual shipments over the next one to three months, fell for an 11th month in August, dropping 12 percent from a year earlier, the Ministry of Economic Affairs said late yesterday. Economists surveyed by Bloomberg News forecast a 7.25 percent decline.

"It's become very normal for the central bank to show its concern to banks after the Taiwan dollar appreciates for a while," said Tigr Cheng, a strategist at Polaris Securities Co. in Taipei. "The central bank will probably keep the Taiwan dollar moving within a small range."

Taiwan's dollar weakened 0.1 percent to NT$32.395 against its U.S. counterpart as of the 4 p.m. close of trading, according to Taipei Forex Inc. It touched NT$32.315 yesterday, the highest level since June 2. A short position is where an investor borrows and sells an asset in anticipation of making a profit by buying it back after its price has fallen.

The local currency will appreciate 4.5 percent to NT$31 per dollar by the end of next year, according to the median estimate in a survey of 15 traders and analysts compiled by Bloomberg.

Calls to the office of Spencer Lin, the foreign-exchange chief of the central bank, weren't answered. Deputy Governor George Chou wasn't available for comments, his assistant said.

The Taiwan dollar will remain stable and won't have any adverse impact on exports, the Economic News Daily reported Sept. 16, citing central bank Governor Perng Fai-nan. Overseas shipments are equivalent to about two-thirds of Taiwan’s gross domestic product. Central banks intervene in the currency markets by arranging purchases or sales of foreign exchange.

The central bank has a flexible currency policy and will "maintain order" in the market if irregular factors cause excessive volatility, it said in an e-mailed statement Sept. 17.

The Taiex stock index has climbed 7.3 percent this month after overseas investors bought $3.9 billion more local shares than they sold. Net purchases for the year total $11.2 billion.

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