Taiwan dollar volatility jumps to 2011 high on rate uncertainty

[TAIPEI] A measure of volatility in Taiwan's dollar jumped to the highest in almost four years after mixed US jobs data added to uncertainty over interest-rate decisions by the Federal Reserve and the island's central bank.

US unemployment fell to a seven-year low, supporting the case to increase borrowing costs, although fewer jobs were added last month than forecast. In Taiwan, economic growth at a three- year low and six straight months of declining exports is fueling speculation the central bank will cut at its Sept 24 meeting. Doing so at the same time as the US tightens policy may cause excessive outflows.

"US data have been quite divergent, but no one can say there will definitely not be a rate increase this month," said Cindy Yu, an economist at Taipei Fubon Commercial Bank Co. "If the Fed keeps the rate unchanged, the likelihood of a rate cut in Taiwan is higher."

One-month implied volatility, a gauge of expected swings in the exchange rate used to price options, rose 44 basis points to 9.45 per cent as of 4:32 pm in Taipei, Bloomberg-compiled data show. The measure climbed to 9.60 per cent earlier, the highest since October 2011.

Taiwan's dollar declined 0.3 per cent, the most in two weeks, to NT$32.935 against the greenback, according to Taipei Forex Inc prices.

Eight of 21 economists surveyed Aug 17-18 predicted Taiwan will lower its policy rate by year-end, compared with just two of 26 in June. Exports fell 14.8 per cent last month from a year earlier, data on Monday showed, compared with the 13 per cent drop predicted in a Bloomberg survey.

BLOOMBERG