The New Taiwan dollar yesterday slid past a key psychological level of NT$30 per US dollar in the morning session for the first time since June 2020, as a double whammy of heightened geopolitical risks and weaker economic growth weigh on the currency.
The currency fell as much as 0.2 percent to NT$30.008 per US dollar. That is because sentiment turned cautious amid US House Speaker Nancy Pelosi’s potential visit to Taiwan and as data showed manufacturing activity was the weakest since May 2020.
“There may be some political risk priced into the Taiwan dollar due to Pelosi’s visit to Asia,” said Khoon Goh (吳昆), head of Asia research at Australia & New Zealand Banking Group.
Photo: Chen Mei-ying, Taipei Times
“This is the main reason why the Taiwan dollar has underperformed in the region despite the greenback being weaker,” he said, adding that the surprise drop in Taiwan’s purchasing managers’ index further into contraction territory also probably weighed on the currency.
The NT dollar retraced some of its early loss to close at NT$29.98 per US dollar in Taipei trading yesterday.
However, the downside risk for the currency is high as indicated by its one-month implied volatility, which has risen in the past four sessions from a five-month low touched last week.
Pelosi left Taiwan out of the itinerary in a statement on Sunday announcing the trip, which is to also include stops in Japan, South Korea and Malaysia. Yet speculation is still rife that Pelosi would visit Taiwan at some point this week, risking a heavy-handed response from China.
“The underperformance in the Taiwan dollar is reflecting heightened geopolitical risk, rather than fundamentals,” Frances Cheung (張淑嫻), rates strategist at Oversea-Chinese Banking Corp in Singapore. “Unfortunately this kind of sentiment appears to be self-fulfilling in that the resulting equity outflows are putting pressure on the local currency.”
ING Bank NV has a bearish outlook on the NT dollar based on fundamentals and weak demand for semiconductors.
“That’s driven mainly from weak demand for smart devices due to lower purchasing power in China and high inflation in US and Europe,” ING chief China economist Iris Pang (彭藹嬈) said.
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