Taiwan Dollar May Slide in First Half on Economy, Barclays Says

By Yu-huay Sun

Jan. 13 (Bloomberg) -- Taiwan’s dollar may fall against the U.S. currency in the first six months of the year as the island’s economy slumps, Barclays Capital said.

Falling interest rates around the world will also support the U.S. dollar, said David Woo, global head of foreign-exchange strategy at Barclays Capital, the third-biggest currency trader. The Taiwan currency fell 0.2 percent to NT$33.235 per dollar yesterday in Taipei.

“We’re looking for the currency to do worse than the dollar in the first half,” Woo told reporters in Taipei yesterday. “We expect further slowdown in emerging-market economies.”

The global recession is damping demand for computers and handsets made by Taiwanese companies, reducing their overseas earnings. Exports plunged by a record 42 percent from a year earlier in December, the Ministry of Finance said last week. The Taiwan dollar has weakened 1.1 percent so far this year, after declining 1.3 percent in 2008.

The gap between benchmark interest rates in the U.S. and those elsewhere is expected to narrow, bolstering the greenback, as monetary authorities worldwide lower borrowing costs to help their economies, Woo said.

The Federal Reserve last month reduced its benchmark to as low as zero, ruling out the prospect of further cuts.

Rate Cuts

The Central Bank of the Republic of China (Taiwan) on Jan. 7 cut the discount rate on 10-day loans to banks by half a percentage point to 1.5 percent at an unscheduled policy meeting, eroding the yield advantage of the island’s currency versus the U.S. dollar. Central banks in Chile, India, Indonesia, South Korea and the U.K. have also trimmed borrowing costs this month to help combat a global recession.

Taiwan’s economy probably contracted for a second straight quarter in the three months through December and may shrink in the January-March period, the statistics bureau said in November. Fourth-quarter economic data and revised projections for 2009 are scheduled for release in February.

The economy grew 1.87 percent last year and will expand 2.12 percent in 2009, according to official estimates.

To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net