TAIPEI (Taiwan News) — Analysts worry that an 8% gain in the Taiwan dollar versus the US dollar over two days is more than a cyclical correction, and is instead part of a global financial realignment brought about by Trump’s tariffs.
While many Asian currencies have strengthened in recent days, Taiwan's has been the most dramatic. Reuters reports that Taiwan, as a leading manufacturer of high-value computer chips, is occupying a “vulnerable point in the global economy.”
The value of exports such as computer chips quickly becomes more expensive with currency appreciation. Taiwan exports more than chips, with everything from textiles to machine tools, suddenly costing more due to a stronger currency.
The rise in the Taiwan dollar coincided with an announcement that a Taiwan trade delegation had completed the first round of trade negotiations with the Trump administration. The Central Bank said it was not instructed to take action based on trade negotiations, but the market feels different.
The heart of the problem appears to be uncertainty over US President Trump's trade war, which has shaken business confidence and disrupted trade relations. Additional volatility came from insurance companies, exporters, and investors rushing to sell US dollars, though buyers were harder to find.
Without a backstop, the Taiwan dollar surged dramatically, though further gains will be monitored and most likely subject to more intervention. The Central Bank is well prepared to protect the currency, as demonstrated through past responses to COVID-19 and Chinese hostilities.
Central Bank Governor Yang Chin-long (楊金龍) said trade talks with the US and the currency appreciation are unrelated. President Lai Ching-te (賴清德) also called on the people not to spread false rumors about foreign exchange negotiations with the US.
The sudden appreciation of the Taiwan dollar may be due to huge trade surpluses accumulated by exporters, along with insurance companies that have accumulated large US dollar positions, which are now being questioned and deemed a possible risk. An anonymous finance industry executive said, "Hot money is flowing into Taiwan, and the Central Bank is allowing it in,” per NOWnews.
Simply allowing inflows of foreign currency may have been enough to buoy the local currency. And given the long-term view of the US onshoring manufacturing, a weakened US dollar serves Trump's interests.
Marc Chandler, chief market strategist at Bannockburn Global Forex, said the sudden currency appreciation was simply due to rumors of new semiconductor tariffs and other trade-related issues that could be announced as early as Wednesday.
