Taiwan dollar declines on China curbs

Asian Defense News: Taiwan's dollar fell, posting its biggest weekly loss in six months, on speculation China will increase borrowing costs to slow lending, threatening a recovery in regional trade. Bonds were little changed.
Speculation Taiwan's central bank will intervene to cap gains after the currency reached its highest level since September 2008 last week also sent the island's dollar lower. The monetary authority said Thursday a strengthening currency is a “double-edged sword” because it will hurt exporters and benefit importers.
“China might raise interest rates,” said Janet Lin, a currency trader in Taipei at Taiwan Business Bank. “The global market is worried about that. The central bank has also been very aggressive in making sure the Taiwan dollar doesn't strengthen too much.”
The local dollar dropped 0.2 percent to NT$31.980 against its United States (U.S.) counterpart as of the 4 p.m. close local time, according to Taipei Forex Inc. It reached NT$32.04 Thursday, the lowest level since Jan. 4 and was down 0.5 percent for the week, the biggest loss since July 10.
Taiwan's central bank highlighted the benefits of capital controls in a statement sent to media Jan. 12, sparking speculation it will seek to limit stock investments from overseas that helped drive up the Taiex index 78 percent in 2009, the biggest annual gain since 1993. The gauge dropped 2.5 percent yesterday, extending its decline to 5.1 percent this week.
Central banks intervene in foreign-exchange markets by arranging purchases or sales of currencies.
Taiwan's exports started to recover in November following a 14-month slump, with concern measures by China to tighten policy will crimp a pickup in trade.
The island's export orders, an indication of shipments in the next one to three months, climbed 52.6 percent in December from a year earlier, after a 37.1 percent increase in November, the Ministry of Economic Affairs reported on Jan. 20.
China reported Thursday that gross domestic product rose 10.7 percent in the fourth quarter from a year earlier, the fastest pace since 2007. It has also guided bill yields higher this year and increased the amount of reserves banks are required to set aside to drain funds from the financial system.
Five-year government bonds were little changed this week. The yield on the 0.875 percent note due January 2015 was 0.90 percent compared with 0.905 percent at the end of last week, according to Gretai Securities Market, Taiwan's biggest exchange for bonds. The price rose 0.0313 or NT$31.3 per NT$100,000 face amount, to 99.8863. A basis point is 0.01 percentage point.