The Taiwan dollar rose to a more than two-year closing high on Friday after investors saw the central bank's interest rate increase as a vote of confidence in the economy's growth prospects. The Taiwan dollar, along with most other Asian currencies, rose against the US dollar in the third quarter, with the US currency weighed by expectations that the Federal Reserve will take more action to sustain the sputtering economic recovery.
The Taiwan dollar opened at T$31.330, unchanged from Thursday's close, but strengthened to an intraday high of T$31.066 before last-minute intervention by the central bank erased most of early gains. It closed at T$31.310. "It's been fund inflows recently that drove the Taiwan dollar higher. It just edged higher a bit every day," said one dealer at a foreign bank in Taipei.
Another dealer at a local bank said the central bank tried to prevent the Taiwan dollar from breaking the T$31.00 barrier. Taiwan's central bank has been seen intervening recently to counter the impact of a stronger Taiwan dollar on exporters. Dealers expect the Taiwan dollar to trade between T$31.050-T$31.300 next week.
Taiwan's central bank raised interest rates as expected on Thursday, seeking to cap inflation and pre-empt asset bubbles following a long period of accommodative policy. Solid economic data or earnings from the United States, Taiwan's No 2 export market, would support the local currency as investors favour growth-linked assets. More signs of weakness in the US economy could pressure the local forex market.