Taiwan dollar at one-year low

The Taiwan dollar weakened on Friday, hovering at a one-year low, due to stock market losses and US dollar buying by foreign banks that offset exporters' purchases of Taiwan dollars and central bank intervention. The Taiwan dollar closed at T$32.550 to the US dollar, its weakest finish since October 24, 2007. It ended at T$32.537 in the previous session.
Volume on the main Taipei Forex Inc exchange shrank to a three-month low of $672 million, from Thursday's $1.437 billion. "The Taiwan dollar has fallen a lot recently, but since investors saw no upside momentum for the currency, they mostly stayed on the sidelines," said a dealer at a local bank. If the US stock markets weaken next week, the Taiwan dollar could test as low as T$32.700 next week, the dealer said.
Taiwan stocks dropped 2.28 percent on Friday to a more than five-year closing low, falling under the 5,000-point mark for the first time in five years, as investors sold shares on concerns over the health of the global economy.
Foreign institutions sold a net T$11 billion ($338 million) worth of Taiwan stocks, and have been big sellers for the past several months, unloading more than T$417 billion since June. "Some foreign banks bought US dollars but we also saw exporters selling the greenback," said another dealer in Taipei.
Exporters usually prefer a weaker Taiwan dollar because they can convert their US dollar earnings to more of the Taiwan dollar. Taiwan's central bank also stepped in to ensure the Taiwan dollar traded in a tight range, the second dealer said. The central bank will likely adopt a low-rate, weak-currency policy for at least the rest of the year to boost economic growth, especially since inflation has fallen off from a near 14-year peak hit in July.
In the non-deliverable forwards market, six-month NDFs were quoted at -0.360/-0.310, wider than -0.300/-0.260 the previous session, implying investors saw the Taiwan dollar firming by a larger degree in six months. Since hitting a 10-1/2-year high in late March, the Taiwan dollar has lost about 8 percent, mainly due to fund outflows.