The worst could be over for the New Taiwan dollar as China’s economic recovery and a rebound in the chip industry will support the beleaguered currency, analysts said.
The NT dollar is on course to weaken for a sixth month, the longest stretch since 2006, after foreign funds turned sour on its technology sector and risk sentiment deteriorated on slower growth in China.
The tide seems to be turning now on nascent signs of stabilization in China’s economy — its biggest trading partner — following policy boosts. The yuan emerged as the best-performing Asian currency last week, followed by the Japanese yen and the NT dollar.
Photo: CNA
The outlook for semiconductors might also provide tailwinds to the currency as Taiwan is home to the world’s biggest chipmaker, Taiwan Semiconductor Manufacturing Co (台積電).
“Improved China economic prospects and a turnaround in the chip cycle should be positive for the [New] Taiwan dollar,” said Eddie Cheung (張敬勤), senior emerging markets strategist at Credit Agricole CIB in Hong Kong. “The capping of the yuan and the pullback in the [US] dollar should act to restrain [New] Taiwan dollar weakness in the near term.”
He estimates the NT dollar would strengthen toward NT$31.1 per US dollar by December. It dropped to a 10-month low this month before paring losses to close at NT$31.978 yesterday.
Foreign inflows returned to Taiwanese stocks last week following stimulus measures in China, which accounts for about a quarter of its total trade. Blockbuster earnings from US chipmaker Nvidia Corp have also sparked hopes of a boom in the tech sector, and Taiwan being the world’s largest chip exporter could benefit from it.
Yet risks remain due to some skepticism over the chip industry’s rebound and geopolitical factors, with Taiwan warning that China is ratcheting up its military pressure.
Investors will now be focused on the nation’s central bank rate decision on Thursday for any cues on the interest-rate path and further support for the local currency.
Technically, the NT dollar has support at its low for last year of NT$32.345 to help stem its decline. Bank of America Corp does not see it breaching that level and predicts the currency would end the year at NT$31.7 versus the US dollar.
“This forecast is largely a combination of moderating [US] dollar strength as we approach the end of the Fed-hiking cycle and our expectation of more meaningful fiscal response by the mainland Chinese authorities to counter the trend of weakening growth,” Bank of America strategist Cheung Chun Him (張駿謙) said.
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