The Taiwan dollar rose on Wednesday on buying by foreign funds investing in local stocks amid a recent market rally, but gains were tempered by central bank moves to keep the local currency from rising too rapidly. The Taiwan dollar rose to a high of T$32.921 against the US dollar, reversing a two-day losing streak.
It later pared some of the gains to close the day at T$32.980, stronger than Tuesday's close of T$33.054. Volume on the main Taipei Forex Inc exchange was moderate at $908 million, lower than Tuesday's $954 million.
"Seems like the climb in the stock market is attracting more foreign funds in again, and they made up most of the Taiwan dollar buyers today," said a dealer in Taipei. "The central bank was selling US dollars, which stopped the Taiwan dollar from rising too quickly."
Taiwan stocks, which closed at a two-month high on Wednesday, have risen by more than 7 percent in the previous four sessions. Since December 1, foreign funds have pumped a net T$30 billion into Taiwan's stock market, reversing major outflows for most of last year.
However, dealers cautioned that the central bank was unlikely to allow the Taiwan dollar to climb much further as this would make the island's exports more expensive, especially when compared to those of its neighbours such as South Korea.
After the market closed, the Taiwan government announced that exports in December fell by 41.9 percent, their worst drop on record. The central bank announced a 50 basis point cut in its main policy rate a short time later. The South Korean won weakened by about 25 percent in 2008, while the Taiwan dollar eased by just over 1 percent during the same period. On the smaller Cosmos exchange, the Taiwan dollar closed at T$32.971, stronger than Tuesday's close of T$33.020.