(March 4): The Taiwan dollar extended losses to its weakest since May, weighed down by heavy foreign outflows spurred by the war in the Middle East.
Taiwan’s currency fell as much as 0.6% to 31.782 per dollar on Wednesday (March 4), the weakest level since May 2. Global investors offloaded a net NT$230.2 billion of Taiwanese stocks so far this week, putting them on track for the biggest weekly sale since at least 2000.
The currency was also pressured by gains in the greenback which is being boosted by demand for haven assets. Expectations that rising energy prices may complicate the path for more Federal Reserve interest rate cuts are also lifting the US dollar against major peers.
“USD/TWD has climbed to fresh year-to-date highs and could retest 32 if sentiment fails to stabilise, particularly if geopolitical uncertainty persists,” said Wee Khoon Chong, senior APAC market strategist at BNY.
Wednesday’s drop in the Taiwan dollar follows an even sharper decline in the South Korean won. The won recently hit its weakest level since 2009 before rebounding on verbal intervention from local authorities. In both markets, investors used the geopolitical shock to lock in equity gains from the recent AI-driven rally.
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Taiwan’s central bank may have to step in if the local currency’s drop accelerates and especially if it rapidly weakens toward 32 per dollar, said Stephen Chiu, chief Asia FX and rates strategist at Bloomberg Intelligence.
Foreign outflows continued to put pressure on the Taiwan dollar, according to traders who asked not to be named as they are not allowed to speak publicly.
State-owned banks sold US dollars more aggressively than in the previous two sessions, the traders said. However, the Taiwan dollar’s losses widened in the afternoon as exporters withheld dollar sales, they said.
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However, dollar sales from state-owned banks significantly pared the Taiwan dollar’s losses into market close, the traders said. The currency closed down 0.3% at 31.695 per dollar.
The Taiwan dollar’s retreat reverses its advance from late last week. Overseas funds had snapped up Taiwanese stocks in their biggest one-day buying spree in 20 years, briefly lifting the local dollar to its strongest level of the year.
Now, derivatives are pricing in a bearish view on Taiwan’s dollar, with one-month non-deliverable forwards for the dollar-Taiwan dollar pair rising above 32, the highest since April as of Tuesday.
The options market is also signalling pressure on the local currency.
One‑month US dollar‑Taiwan dollar risk reversals rose to the highest since April. It indicates that the cost of hedging against the pair rallying now exceeds that of a decline.
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