Taiwan Dollar Gains as Risk Appetite Lifts Stocks; Bonds Drop

By Carmen Ng and Yu-huay Sun

April 9 (Bloomberg) -- Taiwan’s dollar rose, following its biggest two-day drop in eight years, as prospects for additional stimulus spending by Japan fueled demand for Asian assets. Government bonds fell.

The island’s currency climbed as the MSCI Asia Pacific Index of regional shares rose for the first time in three days and a Japanese report today showed February machinery orders unexpectedly increased in the world’s second-biggest economy. Taiwan’s benchmark Taiex index of shares surged 4.1 percent, the most in four months, as overseas investors purchased more of the local shares than they sold.

“The Taiwan dollar has been closely tracking the global stocks move,” said Sebastien Barbe, the Hong Kong-based head of emerging-market strategy at Calyon, the investment banking unit of France’s Credit Agricole SA. “Whenever the U.S. market rebounds, the Taiex will rally on better risk appetite.”

The local currency strengthened 0.4 percent to NT$33.777 against the greenback as of the local 4 p.m. close, according to Taipei Forex Inc. Overseas investors today added NT$11 billion ($326 million) of Taiwan shares to their holdings, after selling NT$17.4 billion in the previous two days, when the currency dropped 2 percent.

The island’s dollar dropped almost 2 percent in the last two days, the most since May 2001, as a government report on April 7 showed exports slid for a seventh month in March.

The Central Bank of the Republic of China (Taiwan) said yesterday in a statement that the currency was “relatively stable.” It bought between $400 million and $500 million of U.S. dollars on April 7 to weaken the local currency, the Commercial Times reported yesterday. Local banks were told not to speculate on gains in the island’s dollar, the newspaper said, citing unidentified traders.

Equities-Driven

“The rise today is not a big one, it’s an equities-driven correction,” Calyon’s Barbe said. “The main uncertainties here are still the earnings ahead.” He predicted the currency may extend this year’s 2.8 percent slide in the coming two weeks.

Taiwan’s overseas sales shrank 36 percent last month from a year earlier. Japan yesterday said its exports halved in February and Germany, the world’s No. 1 exporter, reported a fourth decline in monthly shipments.

Taiwan’s economy contracted 8.4 percent in the fourth quarter, pushing the island into its first recession since 2001. The jobless rate climbed to a record 5.6 percent in February.

Japan’s ruling Liberal Democratic Party will propose the government implement a 15.4 trillion ($154 billion) stimulus package to help revive the economy, according to a document obtained by Bloomberg News.

Bonds Drop

Taiwan’s 10-year government bonds fell, snapping a two-day advance, as stock gains lured investors away from debt.

“The market is very dull,” said James Wang, a bond trader at Yuanta Securities Co. in Taipei. “Yields climbed, mainly because of the impact from stocks.”

The yield on the 1.375 percent bond maturing March 2019 climbed one basis point to 1.54 percent as of the 1:30 p.m. close in Taipei, according to Gretai Securities Market, Taiwan’s biggest exchange for bonds. Its price fell 0.089, or NT$89 per NT$100,000 face amount, to 98.5317. A basis point is 0.01 percentage point.

To contact the reporters on this story: Carmen Ng in Hong Kong at cng98@bloomberg.net; Yu-huay Sun in Taipei ysun7@bloomberg.net