Traders sold six-month at-the-money Taiwan dollar/U.S. dollar straddles Thursday as an appreciation in the Taiwan dollar pushed down volatility on the pair. One-month implied vol fell around a percentage point to 4.3%/5.3%, said a trader in Singapore. This happened as the Taiwan dollar appreciated to TWD32.365 at the close of trading Thursday from TWD32.397 Wednesday, he said. Volatility tends to drop when the Taiwan dollar appreciates against the greenback, he added.
The Taiwan dollar strengthened against the U.S. dollar, largely on the back of Wednesday's 50 basis point interest-rate cut by the Federal Reserve, the trader said. Foreign capital inflows to Taiwan's stock market also helped the Taiwan dollar, he continued.
The Taiwan dollar is unlikely to be allowed to trade much higher though, as the country's central bank regularly intervenes in the cash markets to keep it from strengthening too much, a trader noted. Most trades were speculative, in notional sizes of around USD50 million, the trader said.
