TAIPEI (Taiwan News) — The Taiwan dollar surged 2% against the US dollar, closing at NT$29.16 on Tuesday.
It was the largest single-day gain for the Taiwan dollar since May. The local currency gained 10.97% in the second quarter, according to Commercial Times.
Rapid appreciation of the currency is the single most important factor for business enterprises in the latter half of the year, especially life insurers, which may have more exposure as overseas investments may be affected by depreciation of the US dollar.
Exporters will also be affected, as their goods will become more expensive in overseas markets. Taiwan's economy is highly dependent on exports.
Taiwan’s Central Bank warned exporters and trading companies in early June to resist speculating in the foreign exchange market and only conduct transactions as required for business. Excess speculation would intensify exchange rate fluctuations and harm their interests.
Cathay Life Executive Vice President Lin Chao-ting (林昭廷) also urged market restraint on Tuesday. He said it would be wrong to assume the Taiwan dollar will be strong indefinitely, per Commercial Times.
Lin said his company's foreign exchange risk is being mitigated by currency adjustments and hedging. He reassured the public that no matter which way the Taiwan dollar moves, his life insurance company has sufficient reserves.
Lin said his company had yet to experience any trend in canceling life insurance policies, as demand for new products has strengthened.
Regarding fluctuations in currency derivative products, non-deliverable forward contracts, Lin said fluctuations are typically "too much or too little." If the reaction is too excessive, market forces will pose a counterforce, with adjustment and volatility inevitable.
Lin said that if the Taiwan dollar rises above NT$29 against the US dollar, it will be a good time to accumulate. He added that it would also be a good opportunity to make US dollar-denominated investments, especially in terms of inheritance and trust planning.
Lin said high-asset households will tend to buy insurance policies at this time instead of canceling policies.
Fu Po-Sheng (傅伯昇), CEO of Cathay United Bank Private Banking, said the yield on US dollar investment bonds is more than 5%. Therefore, even if the Taiwan dollar exchange rate strongly appreciates, customers may not necessarily convert back to Taiwan dollars.
To the contrary, Fu said that high-asset customers may be willing to increase their holdings of US dollar-denominated financial products because they appear discounted due to weakness in the US dollar.
