Taiwan Dollar Slides Most in Three Months as Exports Slump

By Bob Chen and Yu-huay Sun

Aug. 7 (Bloomberg) -- Taiwan's dollar dropped the most in three months, sliding as a government report showed exports rose in July at less than half the pace forecast by economists. Bonds advanced on speculation lower oil prices will damp inflation.

The currency slid for an eighth day, the longest losing streak since May 2007, as export growth slumped to 8 percent in July from 21.3 percent the previous month. Economists forecast overseas sales, which account for about half of the island's gross domestic product, would increase 17.1 percent, a Bloomberg survey showed.

``The immediate risk for the economy is the slowdown in exports,'' said Irene Cheung, strategist at ABN Amro Bank NV in Singapore. ``The risk is still toward a higher dollar-Taiwan.''

Taiwan's dollar fell 0.4 percent to NT$30.870 against the U.S. currency as of the 4 p.m. close in Taipei, according to Taipei Forex Inc. That's the biggest one-day decline since May 12. It earlier touched NT$30.948, the lowest since May 15.

Taiwan's economy may expand 4.78 percent this year, the slowest since 2005, according to a statistics bureau forecast released in May.

``Taiwan's economy isn't doing great and it's spurring some fund outflows,'' said Henry Lin, a currency trader at Shing Kong Commercial Bank in Taipei. ``Foreign investors are sending funds out of Taiwan.''

Cheaper Crude

Taiwan's bonds advanced on speculation falling oil prices will help tame the fastest inflation in 14 years. Rising consumer prices erode the purchasing power of debt's fixed- income payments.

Five-year notes rose for a third day as state-run refiner CPC Corp. may announce a cut in gasoline and diesel prices tomorrow, because Dubai crude oil, a benchmark for Asian refiners, has fallen 6.3 percent this month. The company will adjust fuel prices every week, linking them to crude oil costs, the Ministry of Economic Affairs said on its Web site yesterday.

``With oil prices falling, concern over inflation is easing for now,'' said Chen Hung-hsiu, a debt trader at Grand Cathay Securities Corp. in Taipei. ``Bond bulls think there's not big room for yields to climb.''

The yield on the benchmark 2 percent bond maturing July 2013 fell 2.6 basis points to 2.361 percent as of the 1:30 p.m. close in Taipei, according to Gretai Securities Market, Taiwan's biggest exchange for bonds. The price climbed 0.1222, or NT$122.2 per NT$100,000 face amount, to 98.3344. A basis point is 0.01 percentage point.

To contact the reporters on this story: Yu-huay Sun in Taipei ysun7@bloomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net.