N.T. dollar hit 11-month high

This article was published by the Taiwan Headlines on May 4, 2006. It reports that as a result of the influx of foreign capital, the exchange rate of the New Taiwan dollar recently rose to an 11-month high, closing at US$1=NT$31.627. Since the U.S. dollar started to weaken in the international market in early April, the N.T. dollar has risen NT$0.959 against the U.S. dollar. This has boosted the value of the N.T. dollar assets of local people by 3.03 percent in terms of U.S. dollar.

Industry analysts attribute the influx of foreign capital to the rosy outlook of the domestic securities market among foreign investors. Meanwhile, if the market is laden with widespread expectation for further weakening of the U.S. dollar, due to possible ending of interest-rate hikes in the United States and the revaluation of China's renminbi, then it is possible for international speculators to raid the N.T. dollar. As a result, it is estimated that over US$100 billion of capital will leave the United States and switch to Europe and Asia in pursuit of higher returns. This will in turn boost the N.T. dollar to the level of US$1=NT$31.5.

According to Taiwan's Central Bank of China, while it will respect the function of the market mechanism, it will also endeavor to maintain market order. The bank will carry timely intervention if seasonal, occasional or abnormal expectation appears in the market. Such move indicates that the bank has become alert of the influx of foreign capital and may resort to large-scale intervention when necessary. The bank is also closely monitoring the position of stock holdings among foreign investors, in order to prevent manipulation by foreign speculators.

So far, Taiwan's Central Bank of China has been refraining from strong intervention to curb the appreciation of the N.T. dollar, partly because major currencies are also appreciating against the U.S. dollar in the international market, and partly because the revaluation of the N.T. dollar can help alleviate the impact of soaring oil prices on inflation. Another reason may be that intervention at the moment may cost too much, and it may not be able to eliminate the expectation for the revaluation of the N.T. dollar.

According to industry analysts, the massive influx of foreign capital into the Asian market is the main factor for the sharp appreciation of the N.T. dollar in recent months. So far in 2006, the new inflow of foreign capital into Taiwan has hit US$9.877 billion, including US$4.39 billion in April 2006 alone. As a result, the N.T. dollar may even reach the satisfactory point at the level of US$1=NT$31.5.

Over the past two weeks, the N.T. dollar has appreciated 2.78 percent against the U.S. dollar. This is similar to 2.77 percent of Korean won, but lower than 4.38 percent of Japanese yen.