TWD sees sharpest drop in 16 months

Intraday low reached NT$29.285 against the U.S. dollar.

Total turnover for the New Taiwan dollar reached US$1.572 billion, and fluctuated between NT$29.285 and NT$29.570 during yesterday's trading session.

The speculation of currency wars has heated up in Asia as governments adopt strategic devaluation and adopt quantitative easing policies as currencies tumble in the region, in particular Japan's announcement that it is planning to achieve an annual inflation rate of 2 percent.

Observing the windfall that importers of Japanese goods will enjoy, the central bank yesterday urged businesses to reduce prices to reflect the yen's devaluation.

Against the U.S. dollar the South Korean won yesterday reached the intraday low of 1,083.01, a two-month low, while the yen reached the intraday low of 91.26, the lowest since May of 2010.

Similarly, the Chinese yuan dipped by 0.13 to 6.2818 against the dollar in the first half of yesterday's trading session.

The New Taiwan dollar lost NT$0.185 against the yen, representing a decline of 0.63 percent, with trade turnover totaling at US$824 million at the end of yesterday's session.

TWD's Decline May Boost Exports

Both the Taiwan Semiconductor Manufacturing Company (TSMC, 台積電) and the United Microelectronics Corporation (UMC, 聯電) indicated yesterday that they view the devaluation of the New Taiwan dollar as a boon to their respective bottom lines.

TSMC stated that its operations will greatly benefit if the TWD's devaluation persists and the local currency continues to trade below NT$28.9 against the dollar.

UMC indicated that for the short term, the benefit of the exchange rate is limited.

3 Trillion in Losses for Samsung

Contrastingly, South Korean companies who have been enjoying a devalued won for the past four years have been impacted by the accelerated decline of its competitors' currencies.

Samsung wrote off 360 billion won in its fourth-quarter operating earnings last year, and predicts that for 2013 exchange rate-related losses will total over 360 billion won.

Under the influence of the tumbling yen and won, the New Taiwan dollar is poised to dip below the NT$29.50 mark before the beginning of the Chinese New Year's holidays.

Currency Recap

Over the past five years, the strengthening yen has generally placed Japanese exporters at a disadvantage, but the situation is rapidly reversing.

Against the U.S. dollar the yen rose 19 percent, while the New Taiwan dollar rose 9.3 percent, and the won declined by 13 percent, according to data compiled by Bloomberg.

Over the past 12 months, the yen devalued by 15 percent, while the New Taiwan dollar rose 0.7 percent and the won strengthened by 2.8 percent.

In response the South Korean central bank last year tightened limits on the use of currency forwards by banks. As of Dec. 1, positions at overseas lenders were cut from 200 to 150 percent, while the loan ceiling for domestic banks was cut from 40 to 30 percent.

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