Taiwan corporates and investors spooked by the downturn in the country's technology-driven economy last week were scooping up long-dated U.S. dollar calls/Taiwan dollar puts in the offshore market. Demand was across the curve, with interest in the back end for six and nine-month options with typical strikes at TWD35-35.50, according to a trader in Singapore. "They don't want to be caught with Taiwan dollars depreciating further," he noted.
Option trades were usually in notional sizes of USD2-5 million last week, the trader in Singapore added. The greenback was trading at TWD34.4335 on Friday.
Peter Redward, Asian currency strategist at Deutsche Bank in Singapore, said investors bailing out of the Taiwanese stock market is driving demand for U.S. dollars. Equity flows in Taiwan are highly correlated with the NASDAQ Stock Market, and since the NASDAQ had been in a downturn recently demand for greenbacks has grown, he explained.
Taiwan's investors "live and die by the NASDAQ," agreed Lewis Kujinaro, head of currency options at J.P. Morgan Chase in Singapore. He reported one-way interest in purchasing U.S. dollar calls, noting that implied volatility in the one-month contracts--the most heavily traded--stood at 5.86% last week, versus historical vol at 5.1%. J.P. Morgan's three-month outlook for spot is TWD35.50.
TWD/USD Spot & One-Month Implied Vol
