Taiwan dollar, won up

The Taiwan dollar and the South Korean won rose against the dollar on Wednesday in thin, year-end trading despite efforts by both countries to calm currency volatility and prevent sudden capital flows. Taiwan's central bank has inspected non-deliverable forwards and foreign exchange operations at banks including Citibank.
South Korea plans to cut limits on banks' foreign exchange derivatives positions, a regulator source said on Wednesday, following the announcement early this month of a plan to introduce new capital control measures. Emerging countries' economies are grappling with the flood in capital coming from the advanced economies where still-depressed demand prompted authorities to keep interest rates near zero and financial system flush with easy money.
Capital controls by Asian countries are unlikely to reverse bullish trends of currencies in the region, although the steps may slow down their rise, dealers said. Most of measures have been already factored in the markets, they added. "I will buy Asian currencies whenever they fall on capital controls unless controls are huge impact type," said a Kuala Lumpur-based dealer.
The Taiwan dollar rose over 3 percent to strengthen to as much as 29.375, the strongest since October 1997, continuing its recent upward surge. Foreign capital inflows to the region have risen sharply, attracted by better growth prospects and higher potential returns than in major developed economies.
But the Taiwan dollar closes each day little changed, as the central bank intervenes at the end of trading. It has risen about 3 percent so far this year, but without the intervention, it would be up over 8 percent. One dealer at a foreign bank in Taipei said that the inspections would simply mean that banks have to be even more punctilious in their daily reports on trading to the central bank.
The dealer added that the central bank's actions cannot ultimately change the demand for the Taiwan dollar. The won slightly rose against the dollar in subdued trading on exporters' demand for settlements and despite the government's plan to lower ceilings on bank's foreign exchange derivatives positions. The won strengthened to 1,143.2, but gave up much of earlier gains which were largely due to importers' dollar bids, dealers said.