The New Taiwan dollar dropped more than 8 percent against the US dollar in the Year of the Tiger, the steepest annual decline in 25 years, with the greenback bolstered by aggressive interest rate hikes made by the US Federal Reserve.
The NT dollar closed at NT$30.368 against the US dollar on Thursday, the last trading session before the Lunar New Year holiday, down NT$2.54, or 8.36 percent, for the lunar calendar year.
Beginning in 2019, the NT dollar appreciated in value for three consecutive years as it benefited from the US-China trade war, quantitative easing policies during the COVID-19 pandemic and robust domestic stock market growth.
Photo: CNA
It closed out the previous lunar year, the Year of the Ox, at NT$27.828 against the US dollar.
However, the Year of the Tiger brought a sharply different set of circumstances, with Russia’s invasion of Ukraine, rising inflation and the US Fed raising interest rates by a cumulative 425 base points.
As the US dollar soared, the NT dollar — facing pressure from declining exports — sank from NT$27 to a low of NT$32 against the greenback in a “rarely seen” margin of decline, a foreign exchange industry source told CNA.
Only when the Fed began signaling late last year that it would slow the rapid pace of interest rate increases, causing the US dollar to drop, was the NT dollar able to rebound slightly, the person said.
Looking ahead to the Year of the Rabbit, the US is likely to end its rate hikes, and possibly even lower rates at the end of this year, which would improve the NT dollar’s prospects of regaining some of the value it lost in the Year of the Tiger, the source said.
While falling US inflation has fanned speculation that the Fed would further slow its pace of interest rate hikes, several top US central bank officials have said more still needs to be done before they are satisfied prices are under control.
US Fed Vice Chair Lael Brainard on Thursday said policymakers would “stay the course” in lifting rates.
“Even with the recent moderation, inflation remains high and policy will need to be sufficiently restrictive for some time,” Brainard told an event in Chicago, adding that it would ensure inflation returns to 2 percent on a sustained basis.
At a separate event on Thursday, New York Fed President John Williams said inflation remained too high, and that bringing down prices would likely require a “period of below-trend growth and some softening of labor market conditions.”
While the Fed has taken strong action, “it is clear that monetary policy still has more work to do,” he said, adding that policy affects parts of the economy differently.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The New Taiwan dollar and Taiwanese stocks surged on signs that trade tensions between the world’s top two economies might start easing and as US tech earnings boosted the outlook of the nation’s semiconductor exports. The NT dollar strengthened as much as 3.8 percent versus the US dollar to 30.815, the biggest intraday gain since January 2011, closing at NT$31.064. The benchmark TAIEX jumped 2.73 percent to outperform the region’s equity gauges. Outlook for global trade improved after China said it is assessing possible trade talks with the US, providing a boost for the nation’s currency and shares. As the NT dollar
PRESSURE EXPECTED: The appreciation of the NT dollar reflected expectations that Washington would press Taiwan to boost its currency against the US dollar, dealers said Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday. Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent. The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading
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