N. T. Dollar Rose to Nine-Month High

Taipei, May 3, 2006 (CENS)--Affected by revaluation of major Asian currencies, the exchange rate of the New Taiwan dollar against the U.S. dollar jumped NT$0.127 on May 2, closing at US$1=NT$31.786, the highest in the recent nine months.

Market insiders predict that although the N.T. dollar may test new high, room for its further revaluation is limited, in view of the considerable scale of its revaluation in recent months. From mid-April when the local currency began to rise from the level of US$1=NT$32.5, it had already appreciated NT$0.712 as of yesterday. The closing rate on May 2 is the highest since July 26, 2005.

The strong performance of the local currency on the first trading session after the Labor Day on May 1 is attributed to the continuing influx of foreign capital and the revaluation of the Japanese yen last weekend. Traders at large forex-designated banks pointed out that in April alone, foreign investors net remitted US$4.391 billion of capital into the island. However, since forex demand is still strong in the domestic market, the N.T. dollar may drop back for correction in the short term, according to insiders.

Wu Chung-shu, research fellow at Academia Sinica, pointed out that as interest-rate hikes in the U.S. may be approaching a temporary halt and Japanese yen and Korean won continue to rise against the U.S. dollar, the revaluation of the N.T. dollar is acceptable.

He noted that the lifting of the ceiling for overseas investments by life insurance firms will help alleviate the revaluation pressure on the N.T. dollar brought about by the influx of foreign capital. Since central banks of Asian countries are mostly against overly strong currencies, plus the slim margins for Taiwan' s exports business, room for further revaluation of the N.T. dollar is limited.

Kung Min-his, vice president of the Taiwan Institute of Economic Research, also discounted the possibility for further large-scale appreciation of the local currency, although economic growth rate and foreign trade this year will enjoy better performance than last year.

Foreign financial institutions, meanwhile, are holding divergent outlooks for the value of the local currency. Morgan Stanley predicts that the N.T. dollar will rise to US$1=NT$29.5 by the end of the year and to US$1=NT$28.8 next year. It based its forecast on the steady performance of Taiwan' s economy in the last quarter of 2005 and first quarter of 2006, the pessimistic outlook of the U.S. dollar, and the expectation for large-scale revaluation of renminbi. USB AG, however, has a conservative outlook, forecasting that the currency will hover around US$1=NT$32, due to the intervention of the Central Bank of China.