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NT dollar falls to six-month low on carry trade

NT dollar falls to six-month low on carry trade

Taiwan's dollar fell to a six-month low on speculation investors are borrowing in the currency to invest in higher-yielding assets overseas.
The currency completed its fifth monthly loss as the island's key interest rate of 2.875 percent, the second-lowest in Asia after Japan, encouraged carry trades, where investors borrow in low yielding currencies such as the Taiwan dollar to buy higher yielding assets abroad. In Indonesia, the benchmark rate is 6.125 percentage points higher than in Taiwan, while the U.S. rate is 2.375 points more.
"It's going to be heavy going for the Taiwan dollar," said Katie Dean, an economist at Australia & New Zealand Banking Group Ltd. based in Melbourne. "The carry trade story has pushed it lower."
Taiwan's currency fell to NT$33.276 against the U.S. dollar at 4 p.m. local time, the weakest close since October 27, from NT$33.265 on April 27, according to Taipei Forex Inc. The currency has dropped 0.6 percent this month.
Taiwan's 10-year government bonds advanced as a decline in local stocks increased the allure of the fixed income payments from debt.
The benchmark Taiex share index declined 0.9 percent, extending a 0.6 percent drop on April 27. Investors may shift funds to bonds as equities drop, said Yang Shin-min, a bond trader at China Bills Finance Corp. in Taipei.
"Some traders are buying back debt holdings as you don't know how long stocks will keep falling," Yang said.
The yield on the 1 7/8 percent bond due March 2017 was little changed at 2.076 percent, according to Gretai Securities Market, Taiwan's biggest exchange for bonds. The price rose 0.0048, or NT$4.8 per NT$100,000 face amount, to 98.2251. Bond yields move inversely to prices.
The spread of the 10-year yield over five-year debt widened to 6.5 basis points, from 4.38 basis points a month ago, according to data compiled by Bloomberg.


Updated : 2021-05-18 02:31 GMT+08:00