Despite a headwind caused by the withdrawal of foreign capital from emerging markets, the New Taiwan dollar will maintain its uptrend against the US dollar this year, as rising oil prices could hurt US economic recovery and the yuan’s appreciation would drive the local currency’s surging momentum, economists said.
The NT dollar closed at NT$29.754 against the US dollar on Friday, dropping 1.18 percent last week from the previous week, according to Taipei Forex Inc’s data.
However, the NT dollar has still risen 2.02 percent against the greenback since the beginning of the year and appreciated 7.11 percent over the past six months, the data showed.
Chen Miao (陳淼), director of the macroeconomic forecasting center at Taiwan Institute of Economic Research (TIER, 台灣經濟研究院), said the NT dollar was showing a short-term pullback.
“The New Taiwan dollar will keep its uptrend against the US dollar, as the rising oil and raw material prices hurt developed markets more, possibly delaying their schedule of economic recovery,” Chen said on Thursday.
As oil prices continued to hit new highs last week, developed markets like the US and European countries, whose economies rely more on domestic consumption, face more pressure than emerging markets on keeping their paces of recovery, he said.
According to data from ICE -Futures Exchange, Brent crude oil for April delivery surged past US$119 a barrel at one point last week amid ongoing political turmoil in Libya — a key global oil-producing country.
Chen said he remained positive on the NT dollar’s appreciation against the US currency this year, forecasting the local currency would surge to NT$29.3 in the fourth quarter, with a full-year average at NT$29.7.
Lin Chien-fu (林建甫), head of the National Policy Foundation and professor of economics at National Taiwan University, said the NT dollar would strengthen this year as it follows the yuan’s uptrend.
The yuan’s appreciation has typically led to the appreciation of other Asian currencies, and historically in more than 90 percent of cases, the NT dollar has followed the yuan’s uptrend to appreciate against the US dollar, Lin said on Friday.
Lin did not offer a specific target rate for the local currency this year, which hit a 13-year high of NT$28.9 on Dec. 8, saying: “The yuan hasn’t surged enough yet,” indicating further room for the local currency to rise.
However, UBS Securities said the NT dollar could return to the “normal trading range” of NT$30 to NT$35 in the second half of this year, as the US Federal Reserve’s second quantatative easing measure ends in June and the US is expected to start normalizing interest rates then.
The current strength of the New Taiwan dollar was driven in part by the central bank’s concerns about inflation, but the bulk of the appreciation needed to tame imported inflation is probably done, UBS said in a report issued on Feb. 21.
The brokerage said the NT dollar could give back some of its gains and move back to its traditional trading range in the second half of this year because of the government’s concern over loss of export competitiveness and a potential peak in imported inflation.