NT dol­lar faces risks amid Chi­nese yuan’s fall

The China Post - - LOCAL -

The New Tai­wan dol­lar is faced with down­side risks at a time when the Chi­nese yuan is ex­pected to con­tinue a down­trend af­ter a re­cent sharp fall against the U.S. dol­lar, ac­cord­ing to Swiss bank­ing group UBS. Teck Leng Tan, an an­a­lyst with UBS’s wealth man­age­ment oper­a­tions, said that although the Peo­ple’s Bank of China (PBOC), the Chi­nese cen­tral bank, re­peat­edly said that the re­cent dra­matic de­pre­ci­a­tion of the yuan against the green­back was a one-time ad­just­ment, the Chi­nese yuan is likely to move lower in the fu­ture.

On Tues­day, the PBOC cut the yuan’s ref­er­ence rate against the U.S. dol­lar by al­most 1.9 per­cent, catch­ing the global fi­nan­cial mar­kets off guard and spark­ing a cur­rency de­pre­ci­a­tion com­pe­ti­tion in the re­gion.

The Chi­nese cen­tral bank con­tin­ued to cut the yuan’s ref­er­ence rate on Wed­nes­day and Thurs­day by 1.6 per­cent and 1.1 per­cent, re­spec­tively, mak­ing global traders ner­vous. Dur­ing the three ses­sions, the yuan fell more than 3 per­cent against the U.S. dol­lar be­fore it re­bounded on Fri­day.

As a re­sult, the New Tai­wan dol­lar dropped over 1.9 per­cent against the U.S. dol­lar in the past four trad­ing ses­sions to a new fiveyear low. In ad­di­tion to the yuan’s fall, in­ter­ven­tion by Tai­wan’s cen­tral bank to prop up the green­back also could be at­trib­uted to the weak­ness of the New Tai­wan dol­lar; the bank was try­ing to keep the lo­cal cur­rency cheaper to pro­tect Tai­wanese ex­porters.

Although the PBOC tried to calm the global fi­nan­cial mar­kets by say­ing the yuan has no ba­sis to de­pre­ci­ate as the China econ­omy re­mained sound, some cur­rency traders have even spec­u­lated that the PBOC could al­low the yuan to fall another 5 per­cent.

Tan said that China’s econ­omy, the sec­ond largest in the world, has shown signs of slow­ing down, and the U.S. Fed­eral Re­serve is likely to launch an in­ter­est rate hike later in the year, so the PBOC could con­tinue to lead the yuan to de­pre­ci­ate.

A UBS re­search re­port said that the yuan could re­main weak and suf­fer more losses over the next six months as China is ea­ger to take ad­van­tage of a fall­ing yuan to make China’s ex­ports more com­pet­i­tive in the world mar­ket.

Tan said that China’s gross do­mes­tic prod­uct (GDP) ac­counted for 43 per­cent of the to­tal cre­ated by the economies in the Asian Pa­cific re­gion, so there is no doubt that other re­gional cur­ren­cies will fol­low the yuan to move lower, while the mag­ni­tude of the falls in dif­fer­ent cur­ren­cies will vary.

Tan said that Tai­wan, in par­tic­u­lar, has close busi­ness ties with China so it is un­likely for the New Tai­wan dol­lar to es­cape the im­pact re­sult­ing from the yuan’s de­pre­ci­a­tion. In the first seven months of this year, China and Hong Kong ac­counted for 38.9 per­cent of Tai­wan’s to­tal ex­ports.

Tan said that other re­gional cur­ren­cies, in par­tic­u­lar the South Korea won and the Sin­ga­pore dol­lar, also face sim­i­lar down­side risks.

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