The New Taiwan dollar yesterday posted its biggest daily advance since December last year after a report by the US Department of the Treasury last week hinted that US President Joe Biden’s administration could exert greater pressure on Taiwan’s central bank to allow the local currency to appreciate.
The NT dollar rose 0.5 percent to close at NT$28.205 against the greenback, and was emerging Asia’s best-performing currency for the day.
While the Treasury report on Friday did not label Taiwan as a currency manipulator, it said the US would initiate “enhanced bilateral engagement” to address what it considers as “structural undervaluation” of the exchange rate.
Photo: Reuters
“Despite the relief of not being labeled a currency manipulator, the Treasury report still urged Taiwan authorities to limit FX intervention to exceptional circumstances,” Mizuho Bank Ltd chief Asian FX strategist Ken Cheung (張建泰) said. “This, alongside the strong exports, will help support the Taiwan dollar.”
The NT dollar has come under scrutiny as the tech-dependent economy posts a quicker recovery from the COVID-19 pandemic than most of its peers in Asia.
While the central bank does not deny intervening in currency markets, it pushed back against aspects of the US assessment.
The NT dollar is close to being at a balanced level based on the IMF’s valuation model, the central bank said as it urged the US to ease monitoring of trading partners during the pandemic.
“[US Secretary of the Treasury Janet] Yellen is pragmatic and prudent,” central bank Governor Yang Chin-long (楊金龍) told lawmakers yesterday when discussing the Treasury report. “We need to show more than just our sincerity about communicating with the US.”
Taiwan has already held two meetings with the Treasury this year over its currency, Yang said.
The central bank only intervenes when there are concerns about supply and demand in the market, he added.
Regular late-session moves by state-backed banks to pare gains by NT dollar against the US dollar are “a kind of intervention,” Yang had told reporters late last month.
For months, the currency could rise more than 1 percent during the day, only to pare back most of the advance at the close.
“There will still be pressure on Asian central banks to ease back on their intervention activity, which would lead to greater appreciation pressure,” Australia & New Zealand Banking Group Ltd head of Asia research Khoon Goh (吳昆) said. “The easing of US 10-year bond yields and the retreat in the [US] dollar of late has also helped the Taiwan dollar’s move.”
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