TAIPEI (Taiwan News) — The new Taiwan dollar is becoming a new favorite low-yielding currency for forex traders amid fluctuating rates of larger currencies like the U.S. dollar, euro, and Japanese yen.
Investment firms like Goldman Sachs Group, RBC Capital Markets, and SPI Asset Management are turning to Taiwan’s currency for carry trades, according to Bloomberg.
A carry trade is one of the most popular "buy low, sell high" strategies forex traders use, per Investopedia. Traders look to match a high-yielding currency with a low-yielding one, and this pays off if a trader can capture a large interest rate difference between the two.
The new Taiwan dollar works well as the low-yielding currency due to its negative implied yield, investment firms say. The implied three-month yield of the currency is currently at minus 1.3%.
The currencies of South Korea, Israel, and Singapore are also getting attention for carry trade.
“From a carry perspective, the Taiwan dollar and the Korean won could be better than the (Chinese) Yuan given their relatively low yield against the dollar,” said a Hong Kong-based Bloomberg analyst.
