Guard against NT$ losses via forwards, says Citigroup Inc.

The contracts show brokerages are betting that the island's currency will appreciate about 1.3 percent from the current spot rate, which may be too “bullish,” Albert Leung, a Hong Kong-based currency and rates strategist at Citigroup, said in an e-mail yesterday.

“Near-term we would like to tactically turn less bullish with this Dubai fallout,” Leung said. “It's a hedge against further risk aversion but we remain fundamentally bullish on Asian currencies, with the Korean won, Indian rupee and the Philippine peso remaining our top picks over the medium term.”

The forwards were vat NT$31.99 per U.S. dollar compared with a spot rate of NT$32.349 as of 4 p.m. in Taipei. Investors would pocket the difference if the Taiwan dollar remains in the current range of NT$32.10 to NT$32.40, a profit of more than 1 percent, Leung said.

Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

Central bank Governor Perng Fai-nan said last month excessive currency moves hurt the economy and the bank will take steps if irregular factors cause volatility.

The Taiwan dollar has lost 0.9 percent this quarter as the central bank intervened to boost exports. The currency advanced 1.6 percent in 2009, poised for its best annual performance since 2004. Central banks intervene by buying or selling currencies to influence exchange rates.

Overseas shipments rose for the first time in 15 months in November, climbing 19.4 percent from a year earlier, the Ministry of Finance said on Dec. 7. Consumer prices fell 1.59 percent from a year earlier, the state statistics bureau in Taipei said the same day.

“Any Taiwan dollar gains will remain tightly managed in the absence of inflation pressure in Taiwan,” Leung said.

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