The Taiwan dollar firmed to its highest level since early January on Saturday as the market focused on the central bank's interest rate hike and its raising of the reserve requirement ratio for foreign currency deposits.
The Taiwan dollar ended firmer at T$32.736 to the US dollar, compared with the previous close of T$32.754. The local currency rose to as high as T$32.645, which is the highest level since January 11.
Taiwan's markets were open on Saturday to make up for the Dragon Boat Festival break earlier this week. "Everybody is moving along with what the central bank wants nowadays, which is a firmer Taiwan dollar," said a dealer in Taipei.
On Thursday, the central bank raised interest rates by a higher-than-expected 25 basis points, bringing rates to a near six-year high, and sharply boosted the reserve requirement ratio for foreign currency deposits to help curb capital outflows.
Over the past month, the central bank has sold US dollars, lifting short-term rates, reminded dealers to report huge trades, met with senior bankers and encouraged fund managers to market Taiwan dollar-denominated products.
The moves helped boost the Taiwan dollar, which had been under-performing most of its Asian peers as the low interest rate environment sparked capital outflows.
The Taiwan dollar has now gained 2 percent since hitting a 1-1/2-year low in late May, though it is still 0.4 percent weaker since the beginning of the year. Volume on the main Taipei Forex Inc exchange was a paltry US $413 million, down sharply from US $1.653 billion a day earlier.
However, there was some US-dollar buying that pressured the Taiwan currency. "Oil firms and investment trusts were in the market for US dollars, though amounts weren't huge," said another dealer. On the smaller Cosmos exchange, the Taiwan dollar rose to T$32.742 to the US dollar from the previous close of T$32.759.
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