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New Taiwan dollar set for annual win

New Taiwan dollar set for annual win

The New Taiwan dollar headed for an annual gain against the U.S. currency after the nation's central bank raised interest rates Thursday to stave off inflation.
The currency may extend a 0.6 percent advance this year versus the U.S. dollar on prospects higher borrowing costs in Taiwan will reduce the yield disadvantage of securities denominated in the New Taiwan dollar.
"The higher interest rates that are expected will continue to support the Taiwan dollar," said Brad Chen, a currency trader at Chinese Bank in Taipei. "Fund inflows will also help to strengthen the currency next year."
The local dollar traded at NT$32.621 to the U.S. dollar as of 10:32 a.m. yesterday, from NT$32.818 at the start of the year, according to Taipei Forex Inc. Eleven of the 15 Asia-Pacific currencies tracked by Bloomberg rose this year.
Taiwan's central bank increased the discount rate on 10-day loans to banks by an eighth of a percentage point to a five-year high of 2.75 percent, the bank said after its quarterly policy meeting. The decision came after the close of trading in Taiwan's financial markets, and was expected by seven of 12 economists surveyed by Bloomberg News.
China's yuan was poised for its second annual gain since a decade-old fixed link to the dollar was dropped in July 2005 as Chinese officials pledged to allow the currency to keep appreciating to help balance lopsided trade flows.
Central bank Governor Zhou Xiaochuan has said the yuan will play a bigger role in helping to adjust the trade imbalances. Vice Governor Wu Xiaoling also suggested the currency will keep rising.
A stronger yuan increases export prices and lowers import costs, helping narrow China's trade surplus and reduce the record deficit the U.S. has with the Asian nation.
"China has allowed the yuan to appreciate and we can expect at least steady gains in the currency," said Tetsuo Yoshikoshi, a market analyst at the treasury unit of Sumitomo Mitsui Banking Corp. in Singapore. "The yuan's gains have reflected the bigger flexibility allowed by the Chinese authorities.
The yuan this year rose 3.2 percent to 7.8094 against the U.S. dollar, according to data compiled by Bloomberg. It has risen 5.9 percent since the fixed exchange rate was scrapped. China now manages the yuan against a basket of currencies including the Japanese yen and the South Korean won.
The currency may strengthen to 7.48 by the end of next year, Yoshikoshi said.
Gains in the yuan would be welcomed by the U.S. and European governments, who claim China undercuts export prices by keeping a weak currency. Exports made up 35 percent of China's gross domestic product last year.
The comments came a day before the Financial News reported that Vice Governor Wu said the yuan will rise against the U.S. dollar as the Federal Reserve cuts interest rates next year. A decline in the U.S. dollar would help correct global imbalances, she said, according to the newspaper.