The Taiwan dollar rose on Friday from the previous session's one-month closing low as exporters took advantage of the currency's recent weakness, but gains were capped by the central bank and foreign fund outflows. The Taiwan dollar hit a high of T$33.300 but later pared gains to close the day at T$33.360, stronger than Thursday's close of T$33.379, which was the lowest finish since December 10.
"Exporters dominated much of trading today, and volumes are quite thin because there isn't very much going on from the other quarters," said a dealer in Taipei. Volume on the main Taipei Forex Inc exchange was thin at $663 million, sharply lower than Thursday's $1.174 billion.
A rising stock market and strengthening regional currencies also helped spur sentiment in the forex market, as the Taiwan dollar tracked a rise in the South Korean won. An interest rate cut by the European Central Bank did not have the expected effect on the Taiwan dollar, dealers said, because investors had expected such a move.
"The rate cut of 50 basis points was within expectations, and with the economy weighing so heavily in most economies right now, the ECB's move wasn't surprising to most investors," said another dealer. However, the Taiwan central bank stepped in during the final minutes of trade to prevent the local currency from climbing further, which would make the island's exports more expensive.
The central bank, which keeps the local currency in a managed float, sometimes intervenes in the foreign exchange market to prevent massive fluctuations in the Taiwan dollar. Foreign investors, who sold a total of Taiwan $6.79 billion of Taiwan stocks on Friday, also helped curb the local currency's rise as they pulled their money out and placed it into US dollar holdings. On the smaller Cosmos exchange, the Taiwan dollar strengthened to Taiwan dollar 33.349 from the previous close of Taiwan dollar 33.370.