The New Taiwan dollar yesterday dropped to its lowest level in a year against the US dollar on strong demand for the greenback as investors sought shelter in the US currency.
The NT dollar dropped 0.4 percent, or NT$0.117, to close at NT$32.697 to the US dollar, the weakest since September last year, foreign exchange data showed.
Turnover was US$883 million on the Taipei Forex Inc. Including US$463 million in turnover on the smaller Cosmos Foreign Exchange, total transactions hit US$1.34 billion, data from the two foreign exchanges showed.
The local currency opened at NT$32.58 against the US dollar and fluctuated between NT$32.556 and NT$32.724 during the trading session.
A currency dealer at Ta Chong Bank (大眾銀行) attributed the drop to strong demand for US dollars as the credit crisis continued to grip major financial markets around the world.
“It is common for investors to hold onto US dollars amid an international economic downturn, since other currencies may prove to be less effective as risk management options,” the dealer said by telephone, asking not to be named.
The trader said the central bank appeared to have adopted a laissez-faire attitude in the hope that a weakening NT dollar would boost exports.
“The NT dollar would not have depreciated this much had the central bank intervened,” the dealer said. “The currency may soon drop below the NT$32.8 threshold. I wouldn’t be surprised if it traded at NT$33 per US dollar in the near future.”
Exports, the main driver of the nation’s GDP growth, posted a decline of 1.6 percent last month, prompting the monetary regulator to lower interest rates by 25 basis points on Oct. 9.
A trader at Union Bank (聯邦銀行) agreed that the NT dollar was likely to further weaken, but believed the currency would hover around NT$32.8 for a while before sliding to NT$33 against the greenback.
“Central bank Governor Perng Fai-nan (彭淮南) has shown a distaste for instability,” the dealer said on condition of anonymity. “A quick drop would give the impression the nation’s political and economic state is in bad shape so that its currency is undesirable.”
The dealer expects a brief rebound for the NT dollar in the run-up before the central bank updates the figure on the foreign exchange reserves early next month.
"The central bank would like to buy US dollars at the lowest cost possible," he said.
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