Riding the NT Wave: Taiwan's Currency Strength Amid US Pressure and Economic Factors
- Written by a friendly, no-nonsense bloke
Prediction: U.S. dollar to drop under New Taiwan Dollar 30, asserted by financial analyst.
The New Taiwan dollar (NTD) is expected to keep its strong stance against the US dollar in the short term, according to Cathay United Bank's chief economist, Lin Chi-chao. This durability is attributed to an intricate blend of knee-jerk market psychology, the taste of anticipated US foreign policy coercion, and an exciting combination of buoyant TAIEX gains, foreign institutional buying, and anticipation of a potential hefty US Federal Reserve rate cut.
Last Friday, the US dollar slumped NT$0.953, or 3.07 percent, closing at a staggeringly low NT$31.064, a level not seen since Jan. 9, 2024. This disheartening plunge marked the steepest single-day crash since the great US dollar slump of 2002.
The triumphant victory propelled the NTD to claim the coveted spot as the mightiest currency in the Asian market on Friday.
Taking the US trade war into account, Lin revealed, traders are largely swayed by the widespread fear of a "Plaza Accord 2.0," echoing concerns that the ongoing round of tariff negotiations could pave the way for a coordinated effort to weaken the US dollar - but he cautions that this apprehension may be exaggerated.
The unbelievable, all-in-one growth machine that is the TAIEX, buoyed by whopping foreign institutional net buying, not only fueled the NTD's power but also turned the heads of Taiwanese economists.
Wu Meng-tao, director of the sixth research division at the Taiwan Institute of Economic Research, observed that the NTD's recent surge is partially the result of local currency catching up to the yen, which has surged against the US dollar in recent sessions.
Even as Lin expects the US dollar to slip under the NT$30 mark temporarily, he maintains that the NTD will align with other Asian currencies in the long run, avoiding the limelight in the dynamic world of global foreign exchange.
In early 2025, the Trump administration rocked the global trade scene by proposing punitive tariffs on Taiwanese imports, which were initially pegged at a whopping 32% before being briefly reduced to 10% for a 90-day negotiation period. This economic storm signal poses uncertainty for Taiwan's trade policy, potentially nudging it towards more accommodating trade terms or reshaping the US manufacturing base.
These trade skirmishes and the NTD's galloping surge have stirred concerns about Taiwan's capacity to withstand the US pressure while safeguarding its economic welfare. Will Taiwan bend to the US demands and seize the chalice of seemingly unlimited sacrifices? Only time will tell.
(Enrichment Insights: The New Taiwan dollar has experienced significant appreciation, driven by the fear of US trade pressure, capital inflows, and expectations of strong US demand for Taiwanese tech. Yet, excessive NTD appreciation poses potential economic risks, including accelerated capital shifts and a challenged economy. Taiwan's ability to resist US pressure and preserve its economic interests is a matter of concern for Taiwanese economists.)
The strong stance of the New Taiwan dollar in the short term can be attributed to factors such as buoyant TAIEX gains, foreign institutional buying, and anticipation of a potential hefty US Federal Reserve rate cut – aspects closely linked to the broader finance and business sectors.
Taking the US trade war into account, traders are largely swayed by the widespread fear of a "Plaza Accord 2.0," which has a significant impact on the industry, as the ongoing tariff negotiations could pave the way for a coordinated effort to weaken the US dollar, potentially reshaping US manufacturing and affecting Taiwan's trade policies.
