Taiwan's forex reserves end 2-month rising streak

Taipei, Aug. 6 (CNA) Taiwan's foreign exchange reserves dropped in July, breaking a two-month rising streak, due to market intervention by the local central bank to prevent the Taiwan dollar from falling further against the U.S. dollar.

Data compiled by the local central bank showed Taiwan's forex reserves as of the end of July fell US$1.559 billion from a month earlier to US$571.740 billion.

Tsai Chiung-min (蔡炯民), head of the central bank's Foreign Exchange Department, told reporters on Monday that the bank stepped into the trading floor again last month in a bid to "smooth out volatile capital flows to maintain an orderly foreign exchange market", where the Taiwan dollar countered headwinds from a strong U.S. market.

Tsai said the central bank's intervention in buying local currency and dumping greenback offset the effects of an increase in returns from the investment portfolio managed by the bank during July.

According to the central bank, the U.S. dollar index, which tracks the greenback's value to the currencies of Washington's six major trading partners, rose 1.67 percent in July.

In the wake of the higher U.S. dollar index, the Taiwan dollar fell 1.13 percent against the greenback in the month with the euro down 1.21 percent against the American unit, the Canadian dollar down 0.9 percent, and the Australian dollar down 1.96 percent.

However, the Japanese yen rose 4.76 percent and the Chinese yuan gained 0.68 percent against the U.S. dollar in July.

Tsai said the weakness of the Taiwan dollar also reflected a fund exit by foreign institutional investors which remitted large cash dividends they secured from stock market investments in July as part of a peak season for equity investors to pocket cash dividends.

Tsai added foreign institutional investors also locked in their earlier gains from the stock market and sent cash out of Taiwan, which added downward pressure on the local currency.

According to the Financial Supervisory Commission (FSC), the top financial regulator in Taiwan, foreign institutional investors withdrew a net fund outflow of US$5.702 billion in July after a net fund inflow in the previous two months.

Despite the net fund outflow, foreign institutional investors still registered an aggregate fund inflow of US$26.597 billion into Taiwan, the highest seven-month total since records began in 2011, the FSC said.

Meanwhile, central bank data showed that the value of foreign investors' holdings of Taiwan-listed stocks and bonds, and Taiwan dollar-denominated deposits fell to US$783.90 billion at the end of July, down from a record high of US$837.1 billion at the end of June.

Those holdings represented 137 percent of Taiwan's total foreign exchange reserves as of the end of July, down sharply from 146 percent at the end of March.

Analysts said the fall came after the losses on the local stock market, where the Taiex, the benchmark weighted index on the Taiwan Stock Exchange, fell 832.90 points, or 3.62 percent in July.

In July, foreign institutional investors sold a net NT$337.91 billion (US$10.33 billion) worth of shares on the local stock market, the highest net sell for July since the tallies began in 2011, the FSC said.

The local central bank has said it will maintain ample forex reserves to ensure domestic financial markets remain stable and guard against any sudden movement of funds out of the country by foreign institutional investors.