The New Taiwan dollar’s rally is boxing in the central bank, leaving it with limited room to intervene to avoid a “currency manipulator” label from the US.
Heavy intervention in the first half of the year leaves the central bank with a buffer of US$4.5 billion for the second half, Bloomberg said. That is based on US Department of the Treasury criteria that net purchases of foreign currency in interventions should be below 2 percent of GDP over 12 months.
A smaller intervention cushion poses a challenge for the central bank, with the NT dollar forecast to rally further by about 2 percent this quarter as the artificial intelligence (AI) boom drives up demand for local semiconductors. Constraints on intervention would put investors on alert for abrupt moves such as the one in May when the local currency surged the most since the 1980s.
Photo: Bloomberg
Breaching US Treasury criteria risks putting Taiwan in the crosshairs of US authorities and could lead to unfavorable outcomes for the nation in trade negotiations. Some analysts expect the central bank to use interventions sparingly into the end of the year.
“Taiwan’s central bank would need to be more selective in when to step into the market and how much it intervenes to smooth out volatility,” Australia and New Zealand Banking Group Ltd head of Asia research Khoon Goh (吳昆) said. “As a result, we could see greater fluctuations in the Taiwan dollar for the rest of the year.”
The NT dollar has risen more than 6 percent so far this year to 30.75 per US dollar, and a Bloomberg survey showed it might advance further to 30.2 this quarter. The central bank already bought US$13.25 billion of US currency to cap the local currency’s gains from January to June, the most for a half year period since 2020.
Although its dollar purchases for the next US Treasury review that cover the 12 months through June are below the US threshold, the central bank would need to rein in further operations this year to avoid the manipulator label. The previous US report showed Taiwan on the list of countries that the US Treasury is closely monitoring.
The US dollar’s decline this year amid US fiscal concerns is boosting major Asian currencies, providing another tailwind for the NT dollar.
“Should Japanese yen and the Chinese yuan continue to strengthen, there could also be more room for Taiwan dollar to gain,” Malayan Banking Berhad senior foreign exchange analyst Fiona Lim said.
One option for the central bank to avoid the ire of US authorities is to influence the exchange rate.
In June, the central bank asked lenders to delay US dollar sales from exporters in a rare move, people familiar with the matter had said.
Investors are likely to keep a close watch on Taiwan’s trade data on Friday after exports to the US rose sharply in September despite tariffs. Another stellar month would boost the market’s confidence in the local economy and lay the ground for a stronger NT dollar.
“This makes the central bank’s job more challenging amid the presence of the Treasury Report, which acts as a hindrance to the [central bank’s] intervention efforts,” Lim said.
Ryanair, Transavia, Volotea and other low-cost airlines are feeling the financial pain from high jet fuel prices as a result of the Middle East war and are cutting flights. The closure of the Strait of Hormuz has taken a huge chunk of oil supplies off the market, sending the price of jet fuel soaring and triggering fears of shortages that could force airlines to cancel flights. Airlines are not waiting for a lack of supplies to react. “Travel alert: Airlines are cutting thousands of flights right now,” Travel Therapy host Karen Schaler said in an Instagram reel this past weekend.
MANAGING RISKS: Taiwan has secured LNG sufficient to cover 95 percent of electricity demand for next month, UBS said, describing the government’s approach as proactive UBS Group AG has raised its forecast for Taiwan’s economic growth this year to 8 percent, up from 6.9 percent previously, and said expansion could reach as high as 8.6 percent if external energy shocks are avoided. The upgrade reflects a stronger-than-expected first-quarter performance and sustained momentum in artificial intelligence (AI)-driven exports, which UBS said are providing a firm foundation for growth despite geopolitical and energy risks. Taiwan’s GDP expanded 13.69 percent year-on-year in the first quarter, the fastest growth since the second quarter of 1987, the Directorate-General of Budget, Accounting and Statistics (DGBAS) reported on Thursday. On a seasonally
The list of Asian stocks that benefit from business partnership with Nvidia Corp is getting longer, as the region further integrates into the artificial intelligence (AI) chip giant’s business ecosystem. Just in the past week, South Korea’s LG Electronics Inc, Taiwan’s Nanya Technology Corp (南亞科技), as well as China’s Huizhou Desay SV Automotive Co (德賽西威) and Pateo Connect Technology Shanghai Corp (博泰車聯) have become the latest to rally on news of tie-ups, supply-chain participation or product collaboration with the US chip designer. Asian suppliers account for about 90 percent of Nvidia’s production costs, up from about 65 percent last year, data compiled
The Fair Trade Commission’s (FTC) ongoing review of Grab Holdings Ltd’s US$600 million acquisition of Foodpanda Taiwan’s operations, announced on March 23, has taken on fresh urgency as industry experts warn that the transaction could embed significant Chinese cybersecurity vulnerabilities into Taiwan’s digital infrastructure through Grab’s deep ties to autonomous-driving firm WeRide (文遠知行). Less than 16 months after the FTC blocked Uber Eats’ direct attempt to acquire Foodpanda Taiwan — citing potential combined market shares of 80 to 90 percent — the emergence of Grab as the buyer has prompted questions about whether the same competitive harm is simply being rerouted
RSS