The Taiwan dollar fell on concern overseas fund managers will reduce their holdings of the island's stocks and the currency needed to buy the securities.
Investors abroad last week sold a net NT$6.8 billion (US$212 million) of Taiwan's equities after being net buyers of shares the prior week, according to exchange figures.
The appeal of Taiwan's stocks and currency may decline after a report on Jan. 7 showed exports rose in December at their slowest pace in 17 months.
"Fund outflows from the stock market will definitely weaken the Taiwan dollar," Pory Shih, a currency trader at Chang Hwa Commercial Bank (彰化銀行) in Taipei.
The Taiwan dollar fell NT$0.125 to closed at NT$32.263 against its US counterpart, according to Taipei Forex Inc.
Shipments abroad last month increased 6.2 percent from a year ago to US$14.9 billion after climbing 12.5 percent in November, the Ministry of Finance said on Jan. 7.
Taiwan's currency also weakened after US Treasury Secretary John Snow said policy makers "want to do things to sustain the strength" of the US dollar, partly by narrowing the country's budget deficit.
The government needs to "make America the best place to invest money," he said.
"Snow's comments actually touched on ways to curb the country's deficit," Shih said.
Speculation that the US will be able to narrow the shortfall "may prompt investors to sell the Taiwan dollar."
Snow also omitted previous remarks made that signaled demand and supply should decide exchange rates, prompting investors to bet on the US currency, said Sabrina Jacobs, a currency strategist in Singapore at Dresdner Kleinwort Wasserstein.
"That Snow did not explicitly mention that markets determine exchange rates is what investors are concentrating on at the moment, and buying US dollars" against Asian currencies, Jacobs said.
The omission "may tell us that the US is a bit more concerned about the dollar's decline now than some weeks ago."
Snow said in a Dec. 3 interview he has "deep respect for the way markets perform."