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Taiwan dollar softens on North Korea news, c.bank
Reuters - Wednesday, May 27
* Taiwan dollar off five-month closing high
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* North Korea's nuclear test, Taiwan c.bank damp sentiment
* Taiwan c.bank warns against currency speculation
TAIPEI, May 26 - The Taiwan dollar weakened on Tuesday as North Korea's nuclear and missile tests pressured Asian currencies, while reported comments from the island's central bank also damped sentiment.
The Taiwan dollar <TWD=TP> ended at T$32.660 to the U.S. dollar, weaker than the previous close of T$32.626, which had been the strongest finish since Dec. 19 last year.
Before Tuesday, the local currency had firmed for five straight sessions as investors banked on improved ties between China and Taiwan, while the U.S. dollar trended lower in the global market on economy concerns.
Volume on the main Taipei Forex Inc exchange was light at $756 million, lower than $797 million in the previous session.
"The North Korea nuclear test provided an excuse for investors to sell Taiwan dollars before the long weekend," said a dealer in Taipei.
"It was mostly foreign investors selling Taiwan dollars in the afternoon." Taiwan markets will be closed for the Dragon Boat Festival on Thursday and Friday, with trade resuming on Monday.
A report on Tuesday said North Korea would launch more short-range missiles after conducting a nuclear test the previous day, ratcheting up tensions worldwide and weighing on the won <KRW=>. [ID:nSEO205060]
The Taiwan dollar usually tracks the South Korean won as the two economies share similar trade profiles and compete closely in certain export sectors, especially in electronics.
Dealers said central bank comments urging investors to utilise their funds in the stock market instead of parking the money in accounts also prompted some selling in the local currency.
George Chou, Taiwan's vice central bank governor, told lawmakers that the authority had contacted custodian banks asking them to invest their money in local stocks, rather than leaving their funds in bank deposits to wait for the Taiwan dollar to strengthen, the Chinese-language United Daily News reported. [IDnTP208719]
Foreign institutions have been net buyers of Taiwan stocks in May, purchasing T$50 billion so far this month, though that might not translate to foreign fund inflows immediately.
But dealers said some foreign institutions sold Taiwan dollars during Tuesday's as they were worried about central bank moves to ensure the local currency did not firm too much.
In the non-deliverable forwards market, six-month NDFs were quoted at -0.560/-0.510, compared with -0.620/-0.550 in the previous session, indicating investors saw the Taiwan dollar firming less than earlier expectations in half a year.
On the smaller Cosmos exchange <COSMOS1>, the Taiwan dollar softened to T$32.648 to the U.S. dollar from the previous close of T$32.610. (Reporting by Lee Chyen Yee and Lin Miao-jung; editing by Chris Lewis)
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