The New Taiwan dollar hit a more than 10-year intraday high yesterday when it broke the NT$30 benchmark against the US dollar, thanks largely to speculative selling pressure on the US currency amid continued capital inflows.
The NT dollar rocketed to NT$29.950 against the greenback in the morning session but pulled back later to pare early gains because of central bank intervention, dealers said.
The local currency closed 0.3 percent higher at NT$30.010 on the Taipei Forex Inc yesterday from NT$30.100 on Tuesday. The previous record level against the US dollar was set on Oct. 20, 1997, when it hit an intraday high of NT$29.700.
"The central bank intervened in the market to halt the NT dollar's fast appreciation. But it seems that the central bank is the only buyer of the US dollar for the moment," a local forex dealer, who requested anonymity, said in a telephone interview yesterday.
Foreign investors bought a net NT$1.23 billion in Taiwanese shares yesterday and have acquired a net NT$77.8 billion in local stocks in the days following the presidential election, the Taiwan Stock Exchange's tallies showed.
On the back of the capital inflows, the NT dollar has gained 1.77 percent this week, the biggest among major Asian currencies. But the NT dollar also rose because "the prospect of stronger ties with mainland China following the recent presidential election increased the attractiveness of the currency," Matt Robinson, a Sydney-based economist at Moody's Economy.com, wrote in a note yesterday.
The central bank has been under increasing pressure to combat the inflows of hot money because the appreciating local currency undercuts the competitiveness of exporters.
The central bank may extend intervention if exporters also rush to dump the US dollar aggressively once the NT dollar breaks the NT$30 level, the dealer said.
"The central bank will be monitoring the market to avoid volatility," he said.
Still, the NT dollar is facing uncertainty, with the central bank to announce its monetary policy at a quarterly meeting today.
Economists are divided on whether the central bank will persist with its gradual interest rate hikes to contain inflation in light of the recent deterioration in global economic and financial market conditions.
Moody's Economy.com predicted the central bank would leave interest rates on hold this week because economic growth appears to be of greater concern than inflation for the time being.
But economists at Citi Investment Research and the Polaris Research Institute forecast that the central bank would raise its rediscount rate by another 12.5 basis points today to 3.50 percent, following the 14th quarterly increase since October 2004.
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