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Fed tapering puts downward pressure on NT dollar

TAIPEI -- The Taiwan dollar faces downward pressure against the U.S. dollar on expectations that foreign investors will move funds out of Asia after the U.S. Federal Reserve announced a gradual exit from quantitative easing, analysts said Friday.

A significant drop in the Taiwan dollar value Thursday — a day after the Fed's announcement — was evidence that the local currency was trending lower in line with other regional units amid fears of a possible further exodus of foreign funds, they said.

The Taiwan dollar closed at NT$29.945 against the U.S. dollar Thursday, marking a new three-and-a-half-month low. It was the eighth consecutive session in which the local currency fell against the greenback.

The Fed announced after a two-day policymaking meeting Wednesday that it will cut its monthly bond buying program by US$10 billion to US$75 billion in January; of the cut, US$5 billion is Treasurys buying and the other US$5 billion is mortgage-backed securities purchasing.

But the Fed said it will continue to maintain “exceptionally low” short-term interest rates until the jobless rate falls to around 6 percent or inflation exceeds 2 percent.

Norman Yin, a professor of the Department of Money and Banking at National Chengchi University, said the move by the Fed to tighten its monetary policy is expected to prompt investors to park more and more of their funds in U.S. dollar assets.

Yin said due to fund outflows from non-U.S. dollar assets, regional currencies including the Taiwan dollar, the South Korean won, the Chinese yen and the Singapore dollar, felt the pinch of the impact from a higher greenback Thursday.

The won led other regional currencies in the downward trend after the Fed announcement, falling by 10 won to 1,060.22 won against the U.S. dollar at Thursday's close. The drop was the steepest since July 8.

Financial authorities in Seoul said they have kept a close eye on the won's fluctuations and will take action to prevent volatility if necessary.

Local media in Taiwan reported that the central bank has also tightened monitoring on a possible flight of foreign funds, saying the bank's agenda in its upcoming policymaking meeting Dec. 26 will focus on the stability of the local exchange market.

A dealer with a government-invested bank who asked not to be named said foreign banks, local importers and life insurers have placed more bets on the U.S. dollar's appreciation after the Fed's moderate retreat from its fund injections.

In addition, the dealer said, as demand for the U.S. dollar is on the rise with the year coming into an end, the Taiwan dollar could test the NT$30.00 mark soon.

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