The New Taiwan dollar will slide more than other Asian currencies this year as the nation’s export-oriented economy bears the brunt of a slump in global demand, Standard Chartered PLC said yesterday.
Investors should sell six-month Taiwan dollar offshore forward contracts as the central bank will favor a weaker currency to aid exports, which account for two-thirds of the economy, Thomas Harr, a Singapore-based currency strategist for the UK bank, wrote in a research report.
“We have an underweight foreign exchange rating for the [New] Taiwan dollar,” Harr wrote yesterday.
“Exports-to-GDP in Taiwan are around 67 percent. This makes the economy very vulnerable to the deep recession in the developed world and the much slower growth in Asia,” he wrote.
The NT dollar may decline 2 percent to NT$34 against the US currency, Harr forecast, without giving a time frame. Taiwan’s dollar fell 0.4 percent to NT$33.379 against the US currency by the close of local trading, Taipei Forex Inc figures showed. It’s down 1.6 percent so far this year and earlier yesterday touched NT$33.384, the weakest since Dec. 11.
NT dollar six-month non-deliverable forwards traded at NT$33.26 against the US dollar, Bloomberg data showed, indicating an appreciation.
“Significant weakness in competitor currencies is a potential threat to Taiwanese exporter competitiveness,” Harr wrote. “Taiwan and South Korea compete directly with each other for export markets such as Eurozone and the US.”
A government report last week showed exports fell by a record 42 percent last month from a year earlier. The Taiwanese economy probably slipped into a recession in the fourth quarter and may shrink 0.31 percent in the first quarter, the statistics bureau said.
“Taiwan’s dollar still has quite some way to catch up,” Harr wrote. “The central bank has been rumored to be buying US dollars, which suggests it will tolerate moderate weakness of the [New] Taiwan dollar.”
The median estimate of 23 analysts surveyed by Bloomberg News shows the currency will drop to NT$34.30 by the end of June.