Taiwan dollar posts sharpest surge since 1988 amid trade deal speculation with US
Taiwan’s dollar has surged the most since 1988 as traders speculate that authorities might allow the currency to appreciate to help reach a trade deal with the US. The local dollar rose as much as 5% on Monday.
In an emergency press briefing late Monday, Taiwan’s central bank sought to quell speculation about the currency’s surge, saying that the wild two-day appreciation was partially attributable to market chatter and urged against irresponsible speculation, as reported by Bloomberg.
It also reiterated that the US did not require the currency to appreciate. Taiwan’s office of trade negotiations also said that it had wrapped up a first round of tariff-reduction negotiations with the US and that the talks did not touch upon the issue of foreign exchange policy. US President Donald Trump has previously advocated a weaker US dollar to boost America’s competitiveness.
Bloomberg reported that others pointed to US dollar hedging by Taiwan’s life insurance companies as also giving the local currency extra momentum. Separately, the markets regulator has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening Taiwan dollar has impacted their operations, people familiar with the matter said.
“Local exporters are panicking, and local lifers are under-hedged, while equity-related outflows have ceased,” said Ju Wang, head of Greater China foreign-exchange and rates at BNP Paribas SA in Hong Kong. “The central bank remains the only buyer but has not been aggressively supporting the market, fueling speculation that currency valuation is part of the trade talks.”
Taiwan Semiconductor Manufacturing Co. dropped 1.3% on concern the stronger currency will dent its export earnings. The volume of US dollar-Taiwan dollar trades in Taipei early Monday jumped to the most since the 2008 global financial crisis. Banks have been bombarded with customer inquiries over the surge, with Cathay United Bank Co. introducing virtual queues on its online app to “maintain system stability.”
Despite the currency’s gains, Taiwan’s monetary authority hadn’t been seen aggressively intervening in the market Monday to limit its strength, though it typically does so to smooth out volatility. The recent tolerance of the central bank “for Taiwan dollar appreciation likely reflects a broader policy recalibration,” Christopher Wong, a senior foreign-exchange strategist at Oversea-Chinese Banking Corp.in Singapore, said before the central bank’s briefing. “A more market-determined TWD ahead of negotiations may also be helpful during trade talks.”
Currencies have also rallied across Asia in recent weeks as the US dollar has faltered on concern US President Donald Trump’s tariff war will hurt the world’s largest economy. The Taiwan dollar appreciated to as strong as 29.59 to the US currency during the trading day. It was at 30.14 as of 9:24 a.m. in New York. It has advanced more than 10% over the past month.
A large chunk of the insurers’ stockpile of US bonds — including corporate debt and Treasuries — is partially or completely unhedged, meaning they are more vulnerable to losses should the dollar weaken. The companies own about NT$575 billion of US Treasuries, according to the latest data from Taiwan’s Financial Supervisory Commission.
“The moves over the past two sessions were really unprecedented, and if you’re exposed to the dollar as a lifer with little to no hedging, it’d been a painful ride,” says Mingze Wu, currency trader at Stonex in Singapore. “Taiwan life insurers are among the biggest holders of US bonds in Asia, so it makes sense that they’d be on their toes right now.”
Taiwan is on the US Treasury’s “monitoring list” for foreign-exchange practices, and a stronger local dollar may be seen as another olive branch in negotiations.
