No Volatility Here: How Taiwan's Currency Became World's Dullest

(Bloomberg) -- For a currency that surged the most in almost a decade in the first quarter of the year, the Taiwan dollar sure has turned boring.

Price swings in the exchange rate over the past month are the smallest among the 16 major currencies tracked globally by Bloomberg, with even the Singapore dollar being livelier. The Taiwanese currency has traded between 30.7 and 29.9 per greenback since the end of March, just a third of the size of its first-quarter trading range.

The culprit is suspected to be the central bank seeking to prevent currency strength from damaging exports, which account for more than half of the island’s gross domestic product. Foreign reserves have climbed for the past five months, a sign the monetary authority was purchasing U.S. dollars to curb appreciation. Australia & New Zealand Banking Group Ltd. estimates the central bank bought $3.2 billion worth in July and August alone.

"The central bank’s intervention has been quite persistent this year," said Khoon Goh, ANZ’s head of Asian research in Singapore. "The central bank is likely to continue ensuring that the Taiwan dollar does not appreciate too strongly, with 30 a very formidable level."

The Taiwan dollar has risen beyond 30 on five different days this year, only to close weaker than that level. The last time the currency ended a daily trading session stronger than 30 was in September 2014.

While suspected intervention may be limiting the currency’s gains around the 30 level, declines in the greenback and overseas inflows into the local stock market have curbed any weakness. Foreign investors pumped a net $7 billion into Taiwan equities this year, the most among 10 Asian markets tracked by Bloomberg.

When asked by Bloomberg News if the the central bank was intervening in the local currency market, Governor Perng Fai-nan said at a press briefing last week that the exchange rate is "determined by the market" and the "central bank will step in to maintain order if irregular factors cause excessive fluctuations."

Currency Watch

The risk of criticism by the U.S. Treasury Department may also be playing a role in how far the Taiwan monetary authority can go. The central bank scaled back daily end-of-day intervention last year after the island was put on a U.S. currency watch list, which can lead to penalties. The U.S. Treasury is due to release its next report next month.

The British pound has been the most volatile among the 16 major currencies in the past month, followed by the New Zealand dollar and Norway’s krone.

The Taiwan dollar closed down 0.3 percent at 30.30 per dollar Wednesday, its lowest level in a month.

Disappointment over Apple Inc.’s latest products may ease pressure on the currency -- and the central bank. Overseas investors have pulled a net $1.8 billion in September from the island’s stock market, which is dominated by Apple suppliers. Tighter monetary policy in the U.S. will also likely weaken Taiwan’s currency from here, according to ANZ’s Goh.

To contact the reporters on this story: Emma Dai in Hong Kong at edai8@bloomberg.net, Yu-Huay Sun in Taipei at ysun7@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Philip Glamann