The New Taiwan dollar saw a sharp move lower in late trading yesterday, after earlier climbing past a key level for the first time since 2022, stoking speculation the central bank might have intervened to curb the rally.
State banks were seen aggressively buying the US dollar to slow the local currency’s appreciation, said two traders who asked not to be identified as they were not authorized to speak publicly.
The central bank has been seeking to tamp down speculation in foreign exchange markets this year after the local currency’s rally.
Photo: CNA
The NT dollar trimmed about 0.7 percent of gains versus the greenback in a rapid move and closed little changed. Earlier yesterday, it rallied past 29 for the first time in more than three years.
Some market watchers see the central bank behind the sudden reversal of the NT dollar.
The operation “can help to slow the pace of the NT dollar appreciation, but it cannot reverse the trend,” Oversea-Chinese Banking Corp senior foreign-exchange strategist Christopher Wong (黃經隆) said.
“Another wave of broad US dollar selling may see the pair test lower again, but for now the implicit message is that authorities are watching and are likely to guard against excessive volatility,” he said.
With its 12 percent advance, the NT dollar is Asia’s best performer this year. The surge comes as foreign investors snapped up local shares and exporters ramped up their selling of the greenback amid concerns the US currency would keep falling. Repatriation of funds from the nation’s asset managers also played a role.
The almost unprecedented rally is posing a risk to the nation’s export-reliant economy and putting pressure on the life insurance industry, which has massive exposure to US dollar-denominated assets.
It is also taking a toll on Taiwan Semiconductor Manufacturing Co (台積電), which is set to inject US$10 billion in capital to shore up currency hedging operations.
Due to the sharp currency appreciation, Taiwan’s life insurers are facing significant losses in the first half as the move drives down the nominal value of their about US$786 billion foreign-currency assets.
Regulators have taken steps to give life insurers more flexibility in using their reserves to cushion the impact, and the central bank on Wednesday said it had asked foreign speculators to exit bets on the local currency taken through exchange-traded funds.
If currency gains continue, the central bank “might have no choice but to step up more explicit actions to slow it versus just doing window guidance,” Bloomberg Intelligence's chief Asia foreign exchange and rates strategist Stephen Chiu (趙志軒) said.
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