The New Taiwan dollar continued its recent drop against the US currency yesterday and fell to a six-month low, which analysts said would cast a cloud over the nation’s stock market performance in the near term.
At its close in Taipei trading, the NT dollar had dropped NT$0.085, or 0.27 percent, to NT$31.835 — the lowest since Feb. 12, when the currency ended at NT$31.884 versus the greenback.
The NT dollar fell to NT$31.876 in morning session, but recouped much of its earlier losses following the central bank’s intervention.
Turnover was US$1.113 billion at Taipei Forex. Including turnover at the smaller Cosmos Foreign Exchange Inc, total transactions were US$1.68 billion in trading yesterday.
The recent fall of the NT dollar will help “boost tech sector performance while depressing overall index performance,” Peter Kurz, head of Taiwan equity research at Citigroup Global Markets, wrote in a report released yesterday.
The benchmark TAIEX was down 1.71 percent to 6,584.93 points yesterday and has dropped 6.55 percent in the past three sessions, Taiwan Stock Exchange data showed.
Citigroup believes a depreciating NT dollar would have a positive impact on shares in the personal computer components and systems sector, while having an adverse impact on shares of steel, retail and property-related companies.
“The [stock market’s] underperformance could continue as long as the currency remains weak,” Kurz wrote.
The NT dollar has plunged nearly 4 percent in the last month amid foreign capital outflows and speculation that the central bank favored a weakened local currency as it wants to boost economic growth rather than fight inflation.
As more investors are concerned about the outlook of the NT dollar, the central bank’s position has been closely watched by the market.
The bank will hold its quarterly board meeting later this month to discuss whether to adjust its monetary policy instruments.
“It appears that Taiwan’s central bank policy is to simply follow the weakest of the Northeast Asia troika currencies,” Kurz wrote. “When the Japanese yen strengthened in late 2003, the NT [dollar] hugged the Korean won. Then when the Korean won took off in early 2005 versus the Japanese yen, the NT dollar hugged the yen.”
Given the NT dollar’s checkered record with Northeast Asian currencies, Citigroup said it expected a continued near-term weakness for the NT dollar.
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